BOI to raise up to Rs 2,500 cr in capital via AT1 bonds for biz growth

Lender's board to meet on November 4 to consider raising capital in one or more tranches

Public sector lender Bank of India plans to raise up to Rs 2,500 crore in capital through additional tier-I bonds (AT1) bonds to support business growth.

The board of directors is meeting on November 4 to consider raising the capital in one or more tranches, BOI informed BSE.

There is investor interest in AT1 instruments of banks due to or attractive coupons. Last month, the country's largest lender State Bank of India raised India’s largest lender Rs 6,872 crore at a cut-off of 7.75 per cent through AT1 bonds.

As of June 30, 2022, BOI’s capital adequacy stood at 15.61 per cent with tier-I of 13.27 per cent and tier-II of 2.34 per cent. The bank has a policy to maintain capital adequacy above the threshold of 14 per cent. In other words, it would not allow CAR to fall below 14 per cent.

Bank executives said with 14 per cent CAR as the floor, the buffer to support growth is 1.5 per cent. The credit demand remains robust and the bank will need more capital to support credit growth. Hence, the preparation to raise additional capital.

BOI's total advances grew by 15.20 per cent year on year (YoY) to Rs 4,77,746 crore till end of June 2022. Of this, domestic advances rose 9.72 per cent to Rs 4,01,210 crore. According to RBI data the banking system credit rose by 17.9 per cent YOY till early October 2022.

The bank has the option to raise capital through issuing fresh equity shares, but would increase floating stock of shares in the market and put pressure on stock price, executives said.

BOI’s stock is already trading lower (Rs 58.65 on October 28, 2022) than the price of Rs 62.89 per share at which it raised Rs 2,550 crore in equity capital through Qualified Institutional Placement last August.