Axis Bank likely to issue Rs 12,000 cr of tier-2 bonds amid credit growth

Banks have since November issued more tier-2 bonds than AT-1 bonds for the entire year

Axis Bank is likely to raise funds worth Rs 12,000 crore through tier-2 bonds, marking the second-largest capital-raise by a bank through debt so far in the current financial year, sources said.

The private sector lender’s bond sale, which has a base size of Rs 1,000 crore and a green-shoe option of Rs 11,000 crore, is for securities maturing in 10 years, sources said. The bond sale is likely to take place on Friday.

The largest bond by a bank so far this year was by HDFC Bank, which issued 10-year tier-2 debt worth Rs 15,000 crore at a coupon of 7.86 per cent on December 2.

“Axis Bank’s bond issue is likely to be at a fixed coupon of 7.88 per cent,” a source said. Yield on the 10-year benchmark government bond settled at 7.27 per cent on Wednesday.

Banks have embarked on a spree of tier-2 bond issuances since November to raise capital and fund booming credit off-take.

They have issued tier-2 bonds worth a total of Rs 22,700 crore since November 28, treasury officials said. The issuances of tier-2 bonds since November 28 alone, have outstripped Rs 22,534 crore worth of additional tier-1 bonds issued so far in the financial year, the sources said.

With Axis Bank, the total amount issued by banks through tier-2 bonds would rise to Rs 34,700 crore if the entire notified amount is sold.

Participants in the debt capital market had cited softening sovereign--and therefore corporate--bond yields as a key factor behind the timing of the recent tier-2 issuances. Yield on the 10-year benchmark government bond has declined 18 basis points since October 31.

With growth in credit far outstripping that in deposits, banks are faced with a growing need to raise capital. Latest central bank data showed that as on November 18, bank credit growth was at 17.2 per cent year-on-year, much higher than deposit growth which was at 9.6 per cent.