Rural Electrification Corporation (REC) has invested R1,500 crore in the additional tier-1 (AT-1) bonds or perpetual bonds of Indian Bank, Syndicate Bank and Vijaya Bank, reports Bhavik Nair in Mumbai.
Rural Electrification Corporation (REC) has invested R1,500 crore in the additional tier-1 (AT-1) bonds or perpetual bonds of Indian Bank, Syndicate Bank and Vijaya Bank, reports Bhavik Nair in Mumbai. These bonds will qualify as Tier-1 capital and boost the capital adequacy ratio of the banks at a time higher provisions are eating into their capital base.
Earlier, Power Finance Corporation (PFC) had invested a total of R1,800 crore in the AT-1 bonds of Dena Bank and Andhra Bank.
AT-1 bonds don’t have a fixed maturity date and are considered equivalent to equity. Given its perpetual nature, investors often demand a higher yield. According to two bankers, REC has invested `500 crore each in the AT-1 bonds of Indian Bank, Syndicate Bank and Andhra Bank.
“This is a mutual understanding. REC has invested `500 crore in Syndicate Bank’s AT-1 bonds,” a banker from Syndicate Bank confirmed. The bank has raised the funds at a coupon rate of 11.25%, according to its exchange filing.
Indian Bank stated in a BSE filing that the bank has successfully raised `500 crore under Basel III compliant additional tier-I bonds on March 30 with a coupon of 11.15% per annum from REC.
Vijaya Bank also said in a statement that it had raised `500 crore via tier-1 bonds at a coupon rate of 11.25% from REC.
FE had reported that PFC had invested `800 crore in Andhra Bank’s AT-1 bonds at a coupon rate of 10.95% and had earlier invested `1,000 crore in Dena Bank’s AT-1 bonds.
Banks were earlier finding it difficult to find investors for its AT-1 bonds as investors demand a higher yield due to its perpetual nature. As a result, the market for such bonds had gone dull.
One factor that has affected the issuance of such instruments is the investment limitations faced by large debt market players like Employees’ Provident Fund Organisation and Life Insurance Corporation of India.
Banks had even started considering a public issue of AT-1 bonds — Indian Overseas Bank is believed to have commenced the processes but had to put the issue on hold as a final guideline from the Securities and Exchange Board of India is still awaited.
IDBI Bank is believed to have initiated processes for issuing offshore AT-1 bonds, which if it happens will be the first such issue out of India under the Basel III norms. However, investor appetite in overseas market has been a little sluggish and yields have been on higher levels. Chinese banks and other lenders from south-east Asian nations are active in the offshore AT-1 bond markets, according to bankers.