Banks line up Additional tier plans after IRDAI opens door to insurers

Lenders from Bank of Baroda to State Bank of India are lining up plans to raise about Rs 10,000-15,000 crore in the next two months through additional tier-1 bonds, according to people spoke with.

Banks’ resources teams are swinging to action, after IRDAI breathed life into the moribund market by easing the conditions for insurers to buy into these bonds.

AT1 bonds, also known as perpetual bonds, do not have any fixed maturity but offer relatively higher rates as those are considered quasi-equity instruments with a larger risk to the investment. The proceeds augment banks’ capital base.

While SBI may raise up to Rs 7,000 crore, Canara Bank, Union Bank of India and Punjab National Bank are evaluating a new series of perpetual papers, market sources said.

“The latest relaxation has increased investor appetite for AT1 bonds as banks will be able to raise more capital via such instruments,” said Sushanta Mohanty, general manager – treasury at Bank of Baroda. “With credit demand coming up, it is helpful for banks,” he said.

The non-food credit growth, or the loans given to companies and individuals, recorded 13.7% growth in June this year compared with 4.9% a year earlier. This has necessitated banks to raise more capital.