With the deadline to comply with Basel II norms geting closer, banks have started banking on tier I and tier II funds to push up their capital adequacy ratio (CAR). While some banks like the Punjab National Bank (PNB) and Union Bank of India (UBI) have already raised capital through tier I and tier II bonds, others are actively looking at raising capital in the coming months either through rights issue or tier I or tier II bonds.
PNB, early this month raised about Rs 300 crore through tier I perpetual bond series II and Rs 500 crore through upper tier II bonds through private placement aggregating Rs 800 crore. Similarly, UBI has raised capital to the tune of Rs 600 crore through tier I and tier II bond issues. The public sector bank raised Rs 200 crore through perpetual tier-I bonds at a coupon rate of 9.90% with step-up option of 50 basis points at the end of 10th year and Rs 400 crore through lower tier II bonds with a tenure of 10 year and 4 months. The tier II bonds carried a coupon rate of 9.35%. The main purpose of raising additional capital was to meet Basel II norms as also support business growth. The CAR of the bank at the end of September 2007 stood at 11.56%.
Bank of India also came out with innovative perpetual debt instrument bond series II sometime in September to increase tier I capital. The Rs 100-crore issue carried a coupon of 10.45% per annum with a step-up coupon rate of 10.95% for all the subsequent years if the call option is not exercised at the end of 10th year from the deemed date of allotment. UCO Bank also tapped the market with upper tier II bonds amounting to Rs 300 crore. the primary issue of upper tier-II bonds of the bank was pegged at Rs 200 crore with an additional greenshoe option of Rs 100 crore.
Bank of Baroda plans to raise Rs 2,000 crore by February next year to meet the Basel II norms and credit requirement. Chairman and managing director of the bank A K Khandelwal, had announced recently that the bank is looking at raising capital through tier II bonds by February next year. Although the bank has a capital adequacy ratio of around 12.9%, it needs additional capital in view of Basel II norms, he had said.
Federal Bank, on the other hand, had chosen the rights issue route to raise Rs 2,141.47 crore. Post issue, the bank’s net worth would be around Rs 4,000 crore.