Indian banks resilient; AT1 bond market to remain unaffected: Report

During FY23, HDFC Bank was the only private sector lender that raised capital using AT1 bonds

Indian banks are going ahead with their plans to issue additional tier 1 (AT1) bonds, Financial Express (FE) has reported. The decision is significant given the recent turbulence global banks have faced, resulting in regulators writing off billions of dollars of AT-1 bonds. The case in focus is Credit Suisse, whose AT1 bonds worth $17 billion were written off.

 

While Indian banks may not find it difficult to sell their bonds, experts believe that the cost of issuing them may not remain unaffected. In other words, lenders must cough up more interest rates to attract buyers. 

 

Quoting Ritesh Bhusari, DGM, Treasury, South Indian Bank, the report said that private banks might find it harder to raise capital using AT-1 bonds. Also, issuing them will cost more. Bhusari added that large private banks' issuances would be marginally impacted, but small private banks' costs may rise significantly.

 

Notably, Punjab National Bank (PNB) is preparing to raise Rs 2,000 crore using AT1 bonds on March 24 at a coupon of 8.50 per cent. These bonds have a rating of "AA+", as issued by India Ratings. CARE Ratings has issued "AA" ratings for the same. This would be the first issue of AT1 bonds offered by a large Indian bank after the Credit Suisse pandemonium.

 

Experts have said that these bonds will attract a lot of buyers, given the reputation of the lenders combined with attractive returns. AT1 bonds have a 100-year maturity period, which is why they are called perpetual in nature.

 

During FY23, the FE report said that HDFC Bank was the only private sector lender that raised capital using AT-1 bonds.