Punjab National Bank plans Rs 1,000 cr AT-1 bond issue to shore up capital

Public sector lender Punjab National Bank (PNB) plans to raise up to Rs 1,000 crore in capital through additional tier-1 (AT1) bonds. The proposed offering comes just after it raised Rs 4,000 crore through tier-II bonds in early December.

Managing director (MD) and chief executive officer (CEO) A Goel said while capital adequacy is above regulatory norms, the bank would like to maintain an adequate capital pool to support credit growth. 

The cost of paying coupon on tier-1 bonds, a form of debt, is less than servicing equity capital.

The Delhi-based lender’s capital adequacy ratio (CAR) stood at 14.74 per cent with Common Equity tier-1 (CET-1) of 10.88 per cent and AT1 of 1.32 per cent at the end of September 2022. The tier-II level was 2.54 per cent.

The bank already has board approval for raising capital worth Rs 12,000 crore. Of this, Rs 5,500 crore is tier-1 capital and Rs 6,500 crore tier-II capital, Goel said. Out of the Rs 5,500 crore, it already raised about Rs 2,658 crore of tier-1 capital in the last quarter ended September 2022. 

It raised Rs 4,000 crore in tier-II capital at a coupon of 7.89 per cent by allotting bonds on December 1, 2022.

Goel said the tier-1 offering would have a base size of Rs 500 crore and a green-shoe option of Rs 500 crore.

The actual amount and timing of bond offering would depend on the market conditions.

The retained profits in FY23 would get added to capital (equity). This will improve CAR further. The bank has estimated 9-10 per cent growth in retained profits.  

Meanwhile, State Bank of India (SBI) is also looking to raise capital through tier-1 bonds.

In September 2022, SBI issued AT1 bonds worth Rs 6,872 crore with a coupon of 7.75 per cent. Other lenders that raised tier-1 bonds during the current financial year include HDFC Bank (Rs 3,000 crore), Bank of India (Rs 1,500 crore) and Canara Bank (Rs 4,000 crore).

PNB’s gross advances increased 12.84 per cent year-on-year (YoY) to Rs 8.3 trillion at the end of September 2022. It has guided for credit growth of 12-13 per cent this financial year.