Canara Bank to raise Rs 3,000 cr in AT1, tier-II capital in H2FY23

The bank, which aims to keep capital adequacy at the 16% and above level, has already raised Rs 6,000 cr via these instruments in H1

Public sector lender Canara Bank plans to raise up to Rs 3,000 crore in capital through additional tier I (AT1) and tier II bonds in second half (October 2022-March 2023) to support elevated growth in credit. The bank, which is looking to keep capital adequacy at 16 per cent and above level, has already raised Rs 6,000 crore via these instruments in the first half.

Early this month it raised Rs 2,000 crore in capital via AT1 bonds at a coupon rate of 7.99 per cent. This was 25 basis points lower than the rate of 8.24 per cent for AT1 bonds issued in July 2022. 

Going forward, the endeavour will be to issue bonds at lower rates (less than 7.99 per cent) since the lender's credit and financial profile are quite sound, bank offcials said.

Another public sector lender, State Bank of India, had sold AT1 bonds worth Rs 6,872 crore on September 7 at a cut-off rate of 7.75 per cent.

Referring to its capital adequacy profile, the Canara Bank officials said many peer banks including private lenders hold high capital adequacy ratios (16 per cent and above) and market feedback is they would like Canara Bank to maintain CAR at similar levels.

The money raised via AT1 bonds this month will push Canara Bank’s CAR in the region of 16 per cent. Its Capital Adequacy stood at 14.91 per cent with tier-I of 12.13 per cent and tier-II of 2.78 per cent as of June 30, 2022.

The Bengaluru-based public sector lender has approvals in place to raise up to Rs 9,000 crore through AT1 bonds (Rs 5,500 crore) and tier-II bonds (Rs 3,500 crore) in FY23.

The bank’s loan book grew 14.47 per cent year on year in June 2022. Its outstanding advances stood at Rs 7.83 trillion as of June 2022. The demand for funds (loans) ahead of the festive season has been strong and the bank expects credit growth to be higher than the rate seen till June 2022, the officials said.

Reserve Bank of India data showed credit growth in the banking system was at a multi-year high of 16.2 per cent YoY for the fortnight ended September 9. The last time credit growth touched 16 per cent was in November 2013. In the current financial year, banks have extended so far lent over Rs 6.5 trillion, up 5.5 per cent YoY.