MUMBAI: The decision to write off nearly $17 billion in Additional-Tier 1 (AT1) bonds issued by Credit Suisse will not have huge impact on the demand for such bonds in India. However, there will be repricing pressure in such bonds considering the investors will look for higher rates to compensate the negative news around the AT1 bonds.
The exposure of Indian banks to AT1 bonds is relatively low, according to brokerage house Macquarie. Private banks have an exposure of around 0-1% to AT1 bonds, while public banks have an exposure of 1-2%. “In the current scenario, demand for AT1 might drop. However, AT1 bonds will be repriced in terms of higher yields, we may not see a drastic fall in the demand for such bonds. With repricing market forces will come into action we will see again see decent demand for such securities,” Ankit Gupta, Founder, BondsIndia.com told The New Indian Expres.
“Indian banks are well capitalised and are considered less risky. So expectation would be of higher yields and after repricing investors will be happy to invest. Repricing will be more in case of banks which are fundamentally not very strong and do not have strong balance sheet,” Gupta added.
Credit Suisse episode has reminded investors of Yes Bank crisis in which investors court battle for investment made in AT1 bonds. Yes Bank had written off AT1 bonds worth Rs 8,415 crore as part of the bailout in March 2020. These bonds are designed to convert into equity when a lender runs into trouble.
“Institutional demand for AT-1 is expected to come down and mutual funds exposure could further reduce. Such bonds are set to be repriced after the latest global events and the spreads may go up materially. Issuances of AT-1 will come down not because of Credit Suisse or Yes Bank episodes but because Indian banks are well capitalised,” said Feroze Azeez, Deputy CEO of Anand Rathi Wealth.
“The 10 year GOI bond yields have just moved up 50 bps over the past one year. Hence, the Indian banking system is not grappling with issues which a few global banks are facing,” he said.“The 10 year GOI bond yields have just moved up 50 bps over the past one year. Hence, the Indian banking system is not grappling with issues which a few global banks are facing,” he added. According to Macquarie’s report, private sector banks are comfortable with their Common Equity Tier 1 (CET1) levels, and are unlikely to face any issues.