Public sector lender Canara Bank has raised Rs 2,000 crore in capital through Tier I bonds with a coupon of 8.40 per cent to meet regulatory norms and support growth. The base issue was for Rs 500 crore with a green shoe option of Rs 1,500 crore, making the total issue size of Rs 2,000 crore. These bonds carry a “AA+” rating from ICRA. The rating has a stable outlook.
Bond market dealers said the investors predominantly put in bids for about Rs 2,500 crore. The coupon at 8.40 was 90 basis points above a high-rated corporate bond with similar tenure or call option. It was just six basis points higher than pricing for State Bank of India (SBI), which carried a certain premium in the market due to its systematic importance and better profile, they added.
In January, the country’s largest lender SBI raised Rs 5,000 crore in capital through Basel III compliant Additional Tier 1 bonds (AT-I) at a coupon rate of 8.34 per cent amid tight market conditions.
The yields have softened post the monetary policy review last week. Earlier, the yield on the 10-year Government bond was around 7.20 per cent, and now it rules around 7.10-11 per cent level, dealers said.
Bengaluru-based lender’s Capital Adequacy Ratio (CAR) stood at 15.78 per cent as at the end of December 2023. Out of which, Common Equity Tier 1 (CET1) was 11.28 per cent, Tier-I was 13.38 per cent, and Tier-II was 2.40 per cent.
Rating agency ICRA said it expected the bank to remain self-sufficient for its capital requirements for absorbing incremental stress as well as for growth requirements. This is while keeping the desired cushion on the capital well above the regulatory levels (including Capital Conservation Buffers (CCB)). However, the impact of transitioning to provisioning, based on the Expected Credit Loss (ECL) framework, on the capital and profitability levels will remain a monitorable, the rating agency added.