IDBI Bank likely to take call on additional tier-1 bonds post-PCA exit

Though setting off losses against the balance in securities premium accounts will help IDBI Bank’s capital raising plans, the lender will wait to exit from Prompt Corrective Action (PCA) regime and profitable fourth quarter to issue tier-I bonds.

The lender is in a better shape and the current capital base is adequate and could support growth in the next financial year, bank executives said. Its capital adequacy ratio was 14.77 per cent at the end of December 2020.

Also, being a PCA entity means investors seek higher coupon (yield) on bonds, that too when the interest rate cycle is changing, they said. The board of LIC-controlled private lender has approved setting off its accumulated losses worth Rs 45,586 crore against the balance in the securities premium account, according to the bank's draft scheme.

The set-off exercise is subject to shareholders and regulatory approvals.