Axis Bank, Bank of India eyeing to raise funds through AT-I bonds

In FY25 so far, banks have raised Rs 8,000 crore through perpetual bonds. In comparison, banks raised Rs 20,706 crore in FY24 and Rs 31,394 crore in FY23

Two major lenders, Axis Bank and Bank of India (BoI), are looking to tap the domestic debt capital market to raise funds through additional tier – I (AT-I) bonds to strengthen their capital base. 

 

While Axis Bank is looking to raise up to Rs 2,000 crore through AT-I bonds, state-owned BoI is eyeing to raise upto Rs 2,500 crore through the same instruments.

 

Domestic rating agency CRISIL has assigned ‘AA+’ rating to the private sector lender’s proposed AT-I bond issuance, while India Ratings has assigned ‘AA’ to the BoI’s proposed issuance.

 

AT-I bonds are perpetual in nature and include provisions that could affect interest payments if certain capital and earnings thresholds, or triggers, are breached. In the worst-case scenario, these bonds may be converted into equity, underscoring the higher risk associated with them.

 

According to a BoI official, the bank would like to be prepared with an adequate capital base for events like call option and rolling out of the expected credit loss (ECL) regime for stress asset provisions. The call option for its AT-I bonds issued in 2021 is due in financial year 2025-2026 (FY26). The state-owned bank is likely to issue the proposed AT-I bonds in December 2024.

 

BoI since FY21 has been reporting consistent profitability, which, along with timely capital raise, has largely led to an improvement in its common equity tier 1 to 13.52 per cent at the end of Q2FY25 and resulted in a total capital adequacy ratio of 16.63 per cent, said IndiaRatings in a note.

 

Meanwhile, according to CRISIL, supported by regular equity capital raised via qualified institutional placements (QIP) and improved accruals, the capital ratios of Axis Bank have remained healthy, as reflected in tier 1 and overall capital to risk-weighted adequacy ratio (CRAR) of 14.5 per cent and 16.6 per cent, respectively, as on September 30, 2024.

 

“Given the bank's healthy cash accrual and demonstrated ability to raise capital, it is likely to maintain healthy capitalisation to support overall credit risk profile of the bank and also adequately cover for asset-side risks, while pursuing credit growth over the medium term,” the rating agency said in its note.

 

Previously, in August, state-owned Canara Bank raised Rs 3,000 crore through the issuance of AT-I bonds at a coupon rate of 8.27 per cent. In October, State Bank of India also raised Rs 5,000 crore AT-I bonds at a coupon rate of 7.98 per cent to bolster its capital base.

 

In FY25 so far, banks have raised just Rs 8,000 crore worth of perpetual bonds. In FY24, banks had raised Rs 20,706 crore through perpetual bonds, and in FY23 they had raised Rs 31,394 crore.