IOB will look at issuing perpetual bonds in next three months

Indian Overseas Bank (IOB), which recently said it is postponing fund raising through perpetual bond, has said in three months it will raise the money through the same mode. The bank was planning to raise around Rs 800 crore.

IOB's board on December 08, 2012, considered and approved to raise Rs 800 crore by way of Tier 1 (perpetual) bonds in one or more tranches. However, the bank has postponed due to the change RBI brought in regarding implementation of Basel III.

IOB's Chairman and Managing Director M Narendra said that at this juncture, the Basel II to Basel III has been postponed by three months and the perpetual bond with the Basel II to Basel III is yet to get into the market perfectly.

“It is not necessary that to issue the bond right now. That will be issued according to the market maturity in the next three months, if at all we need it,” he said.

Narendra said whatever banks have issued, that need not be in tier I, unless it complies with the Basel II to Basel III guidelines. These bonds will be qualified only as Tier II, not as Tier I. If at all a perpetual bond is issued as a Tier II bond, it has no value. Perpetual bond should be issued as Tier I, and the bank was looking at the bond issuance earlier since Basel II to Basel III was expected to come after December. Now, the RBI has given another three months, so there is no necessity to issue.

Perpetual bonds are bonds without any maturity date and are not redeemable. However, the bondholder would receive a steady stream of interest forever, on the perpetual bond.

In the event of IOB raising funds through perpetual bonds along with the proposed preferential share capital to be raised from the government, the Tier I component would go up to above 8% by end of the current fiscal, he added. The bank has requested the central government to infuse around Rs 1,500 crore for the current fiscal.