Business Standard

Ease in perpetual bond valuation norms set to revive market, say investors

Banks had slowed issuing the notes as the 2021 valuation norm change hurt appetite. In January this year, they had sought a relaxation

Sebi, Securities and Exchange Board of India

No bank has issued perpetual bonds so far this fiscal year.

Reuters

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India easing norms for how mutual funds value perpetual bonds will prompt banks to resume issuing the notes and revive the market, bank officials and investors said.
 
The Securities and Exchange Board of India (SEBI), which had tightened valuation norms in March 2021 after Yes Bank completely wrote off its perpetual bonds, said last week that mutual funds can use the call option maturity to price the notes.

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Additional tier I perpetual bonds are debt instruments that have no pre-defined maturity date, and mature when issuing bank exercises the call option.
 
 
Banks had slowed issuing the notes as the 2021 valuation norm change hurt appetite. In January this year, they had sought a relaxation.
 
Now, the country's largest lender State Bank of India and its state-run peers Canara Bank, Bank of Baroda and Punjab National Bank are likely to raise around Rs 15,000 crore (about $1.8 billion) through perpetual bonds by September end, bankers said.
 
The lenders did not immediately respond to Reuters' emails seeking comment.
 
"We see relatively better interest from mutual funds after the revised norms," Mahendra Kumar Jajoo, fixed income CIO at Mirae Asset Investment Managers (India), said.
 
No bank has issued perpetual bonds so far this fiscal year.
 
Funding raising through the notes dropped to Rs 17,500 crore in fiscal year 2024 from Rs 34,400 crore in the previous year, data compiled by Reuters showed.
 
"...The change in valuation recognises the market practice and legitimizes it in the way of valuation. Now, there should be lesser volatility in NAV (net asset value) of funds holding such bonds," Sandeep Bagla, CEO at Trust Mutual Fund said.
 
The move will likely boost initial demand and improve market sentiment, but the long-term impact on yields is expected to be neutral as the market adjusts to supply dynamics, Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap, said.
 
Over the longer term, interest in the notes will be a function of the additional return they offer over regular unsecured bonds, Anurag Mittal, head of fixed income at UTI Mutual Fund said.


(Only the headline and picture of this report may have been reworked by the Business Standard staff; the rest of the content is auto-generated from a syndicated feed.)

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First Published: Aug 13 2024 | 10:37 PM IST

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