Indian Bank to raise Rs 1,500-crore capital through tier I & II bonds

Public sector lender Indian Bank is planning to raise up to Rs 1,500 crore capital through additional tier I bonds (AT1 bonds) of Rs 500 crore and tier II bonds of Rs 1,000 crore to enhance its capital profile.

As of December 31, 2020, total capital adequacy ratio (CAR) stood at 14.06 per cent and tier 1 CAR was at 11.18 per cent. The bank's common equity tier I (CET 1) continues to be relatively strong at 10.35 per cent as of December 31, 2020. Kolkata-based Allahabad Bank merged with Indian Bank from April 1, 2020. The Centre’s stake in the amalgamated bank was 88.06 per cent in December 2020. 

CARE Ratings has assigned “AAA” rating to tier II bonds and “AA” rating to AT1 bonds of the bank. Rating for AT1 bonds factors in aspects like if the bank has full discretion at all times to cancel coupon payments. The coupon (interest on tier I bonds) is to be paid out of current year’s profits. The bank has set off the accumulated losses with a share premium account, thus enh­ancing the net distributable reserves for AT1 coupon payment, CARE said.

Tier II bonds are characterised by a ‘point of non-viability’ (PONV) trigger due to which the investor may suffer loss of principal. 

Their asset quality is moderate and increase in proforma gross non-performing assets (GNPAs) is lesser than expected. Proforma GNPAs of the amalgamated entity stood at 10.38 per cent in December 2020 (11.30 per cent in March 2020). Net NPAs were at 3.49 per cent at the end of December 2020 against 4.19 per cent in March 2020. Total provision coverage stood at 75.77 per cent as on December 31, 2020 (66.02 per cent as on March 31, 2020). Advances stood at Rs 3.89 trillion at the end of December 2020.

The bank raised additional tier 1 and tier 2 bonds of Rs 2,000 crore each in FY21.

The bank is also expected to raise capital, which will further provide cushion to the bank to manage risks, the rating agency said.