AT1 Bond Issuances Likely To Fall to around Rs200 bn in FY22-23: ICRA

IANS 22 August 2022

The additional tier-1 (AT-1) bond issuances are likely to fall sequentially to around Rs200 billion in FY22-23, from an all-time high of nearly Rs428 billion in FY21-22.

The issuances were higher in FY21-22 as most were driven by refinancing obligations of issue in FY16-17.

Net of new offerings and redemptions between April and July 2022, the AT-I bonds outstanding on 31st July were Rs1.02 trillion. With approximately Rs200 billion in estimated issuances throughout FY22-23 (of which Rs53.2 billion was issued in 4MFY22-23) and Rs94.0 billion in predicted redemptions during August-March 2023, the AT-I bonds outstanding are expected to reach around Rs1.1 trillion by March 31, 2023.

"Public sector banks are expected to raise Rs201 billion in AT-I bonds during FY22-23, but private sector issuances are expected to remain modest depending on market opportunities. Unlike in FY21-22, when issuances were mostly driven by rollover requirements, issuances by public banks in FY22-23 are primarily driven by growth requirements," said Anil Gupta, vice-president, ICRA.

Investors' desire for AT-I bonds of public banks has been bolstered by their improved financial position and improved ability to service them after setting off of their accumulated losses against their share premium account.

The yields on recently issued AT-I bonds issued by public banks ranged from 8.0% to 8.75%, compared to 7.25% on a five-year government bond and 7.55% on a five-year AAA corporate bond.

The coupon on the bonds issued recently is greater than the coupon on the bonds issued in FY21-22, but it is still lower than the rates on the bonds issued earlier in FY16-17 and FY17-18.

Private banks account for Rs180 billion of the Rs253 billion scheduled call option on AT-I bonds during FY22-23 (Rs73 billion by public banks). The issuances from private banks, if any, are unlikely to reach Rs50 billion.

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Comments

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Kamal Garg

2 years ago

RBI is fully and only responsible for the mess created in AT-1 bonds when it wrote-off the AT-1 bonds of Yes Bank completely, which logically, realistically and legally also should not have been done (the law provides that first share capital/share premium - net worth- of the bank has to be written-off/adjusted, then, only AT-1 bonds can be written-off). In its zeal to rescue Yes Bank, RBI threw all the norms and legal provisions out and still wrote-off AT-1 bonds of Yes Bank.