Canara Bank to raise ₹3,500 crore via AT-1 bonds in FY's first issue

Canara Bank is set to raise up to ₹3,500 crore through AT-1 bonds on November 25, likely the first such issue of the financial year, as falling yields revive activity in the domestic debt market

Canara Bank plans to raise up to ₹3,500 crore through an Additional Tier-1 (AT-1) bond issue on November 25, which could be the first such issuance in the current financial year, sources aware of the development said.

 

The issue has a base size of ₹1,500 crore and a greenshoe option of ₹2,000 crore.

 

Banks have been largely absent from the domestic debt capital market since the start of the financial year, dampening overall corporate bond market activity so far. The renewed wave of bond issuances is being driven on the back of falling bond yields coupled with the expectations of a 25-bps repo rate cut in December, and strong demand from provident and pension funds looking to lock in long-duration debt.

 

“This will be the first Tier-1 bond issuance of the financial year. Banks are bringing Tier-1 and Tier-2 bonds to market now because no further cuts are expected after December. Since the expected rate environment is already priced in, banks see this as the most favourable window to issue these bonds as this will be the minimum rate of interest,” said a dealer at a state-owned bank.

 

Meanwhile, following State Bank of India’s (SBI) ₹7,500 crore fundraise through Tier-II bonds at record levels, several state-owned banks are now planning to tap the domestic debt capital market to raise funds via Tier-II issuances. This marks a shift from earlier in the year, when such activity was largely absent, with only SBI and ICICI Bank accessing the market.

 

“Most bond issuances during the current financial year have been short-term, leaving strong demand from long-term investors like provident funds. Previous issuances, such as SBI’s Tier-2 bond at 6.93 per cent indicate significant market interest in long-term instruments,” said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.

 

“Some banks are refinancing earlier bonds that have reached their call option. Others are raising capital ahead of the monetary policy, while some may choose to tap the market afterward. Overall, banks are timing issuances to maximise investor participation and favourable rates,” he added.

 

Market participants said that with ample liquidity in the banking system, banks have not been in a hurry to issue bonds. This has created a window where issuing bonds now makes strategic sense. Banks that require additional capital are using this period to issue Tier-1 and Tier-II bonds to meet specific funding needs.

 

Although some banks, such as Bank of India and Bank of Maharashtra, have received board approvals for infra bonds, no issuances have been announced so far. Banks had tapped the domestic debt capital market aggressively in FY25 through infrastructure bonds as deposit growth was running behind loan growth.

 

Since banks have been mostly inactive in the bond market this year, experts said total fundraising by Indian companies, including banks, may fall short of last year’s figure of close to ₹11 trillion.