Bank of Baroda (BoB) is planning to hit the bond market on Tuesday to raise close to `1,650 crore via additional tier-1 bonds or perpetual bonds, bond market sources told FE.

An additional tier-1 (AT-1) bond or perpetual bond is an instrument that does not have a fixed tenor but usually has a call option embedded. Investors usually demand a higher coupon on perpetual bonds compared to fixed tenor instruments.

Kamal Mahajan, head of treasury and global markets at Bank of Baroda, confirmed the development with FE. “I think the market is quite bullish right now. We expect our perpetual bonds to be priced in the range of 25-35 bps higher than SBI’s perpetual bonds. As far as BoB is concerned, we are quite comfortable with capital. We recently got Rs 7,000 crore from the government and raised another Rs 993 crore during this month under ESPS from the staff. We expect a 25 bps rate cut in the upcoming monetary policy. Markets generally react to expectations and I believe the yields are factoring in a rate cut,” Mahajan told FE.

In regard to BoB’s perpetual bonds, market participants indicated that the issue is likely to attract a reasonable interest. “The pricing is not yet clear but we expect it could be about 25 basis points higher than that of SBI’s perpetual bonds,” said a bond dealer not wishing to be named. SBI had recently raised Rs 3,813.60 crore via perpetual bonds at a coupon of 8.50%, according to an exchange filing.

It is noteworthy that despite the rise in inflation, a section of the market still expects the RBI to cut the repo rate in the December monetary policy. Bond market participants believe that yields have already troughed out and this would be the right time to hit the market.

“Although some people believe there could be a rate cut in the December policy, I believe that any possible rate cut could be the last one in this cycle, considering where the inflation is. Also, the system liquidity is quite abundant right now. I believe the BoB AT-1 issue will attract significant interest,” said a bond dealer.

For the quarter-ended September, BoB’s capital adequacy ratio stood at 12.98% while its CET-1 ratio stood at 9.84%.