IDBI Bank raises Rs 1,500 cr via tier I bonds

Public sector lender IDBI Bank Limited has raised capital of Rs 1,500 crore through Basel III compliant Additional Tier-1 (AT1) bonds to enhance capital adequacy.

The issue opened and closed on August 30, 2016. This is the first AT1 bond issuance by the Bank during FY 2016-17.

Kishor Kharat, Managing Director & CEO, IDBI Bank the issue was competitively priced at a coupon of 11.09 per cent payable annually. It would enhance the capital adequacy of the Bank by about 45 basis points.

The Capital Adequacy Ratio (CAR) of bank stood at11.06 per cent at end of June 2016. Out of this tier I was 8.65 per cent. The issue is perpetual in nature with call option after the instrument has run for 5 years and every year thereafter.

The amount mobilised would be counted as a part of Tier I capital and enhance the capital adequacy of the Bank. The bonds are rated A+ with Negative outlook by ICRA and India Rating.

A K Capital Services Limited, Axis Bank Limited and Trust Investment Advisors Pvt. Ltd. acted as the arrangers for this issue.

Ironically, issuance by IDBI Bank will happen at a time when the ratings agency ICRA has flagged risks over capability of public sector banks' ability to service coupon (interest payments). The huge losses reported by many PSBs in 2015-16 and weak balance sheets, depleting revenue reserves of banks are reasons behind the agency's pessimism.

Some public sector banks, SBI being an exception, are using AT-i bonds to shore-up capital adequacy as they are finding it tough to issue fresh equity shares to raise capital. Their shares are trading at discount to book value.

There is pressure on the net distributable reserves and credit balance of some PSBs due to loss and tidy amounts set aside as provision for bad loans.


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