Indian banks to test global market for Basel-III-compliant tier-I bonds

Analysts say these two being new instruments, banks will first like to tap global market that has deep, mature bond segment

Indian banks are exploring the prospects of raising capital from the international market by issuing Basel-III-compliant tier-I bonds, according to a senior Reserve Bank of India (RBI) executive.

“Many banks have approached us on raising non-equity tier-I capital from the international market. After assessing the nature of the appetite and the response in the international market, they may look at the domestic market,” Chandan Sinha, principal chief general manager, RBI, told reporters on the sidelines of a CRISIL bond market summit.

Under the Basel-III regime, tier-I non-equity capital comprises preference shares and perpetual bonds. According to CRISIL data, the total tier-I non-equity capital of Indian banks for the five years ending March 2018 is pegged at Rs 1,40,000 crore.

Also, they would need Rs 3,40,000 crore of non-equity capital (tier-I and tier-II) till March 2018, under Basel-III regulations.

Analysts said as preference shares and perpetual bonds were new instruments, banks would first seek to tap the global market, which had a mature bond segment.

The key challenge was raising tier-I non-equity instruments, owing to the risk of coupon discretion and principal loss absorption at specified capital thresholds, CRISIL said in statement.