MUMBAI: Expecting a pick-up in credit demand, the state-run Canara Bank is set to launch a Rs 3,500-crore bond sale, emerging as the first bank in the current financial year to tap the additional tier-1 (AT1) bond market.
This will strengthen the Bengaluru-based lender’s core capital base and support its future growth plans.
The Basel III-compliant AT1 bond sale will hit the markets on Friday on the electronic bidding platform of the NSE, the bank said in a statement Wednesday.
The proposed issue is structured around a base component of Rs 1,000 crore and a green shoe option of Rs 2,500 crore to meet strong investor demand, the statement said but did not offer a guidance on the coupon rate.
The AT1 bonds market has been in a lull for long and the success of the opening issue this fiscal is likely to nudge others to follow suit .
The AT1 bond issue forms part of the broader capital raising programme of Canara Bank of up to Rs 9,500 crore for the year, combining tier-1 and tier-2 instruments to bolster regulatory capital ratios under Basel III norms.
AT1 bonds are perpetual debt with no maturity date and carry high-risk debt securities offering higher yields, which banks issue to meet regulatory capital requirements under Basel III norms.
As of March 2024, the total outstanding AT1 bonds from domestic banks stood at Rs 1.28 trillion, most of which are issued by public sector banks.
AT1 bonds can be written down or converted to equity if a bank's common equity tier 1 (CET1) capital falls below a certain threshold. These bonds are typically bought by institutional investors like mutual funds and corporates.
It may be noted that Canara Bank has the second lowest capital adequacy ratio (CAR) among public sector banks at a low 16.2% of its network which stood at Rs 1,08,291 crore at the end of the September quarter. Among large banks, SBI has the lowest CAR at 14.6% and Kotak Mahindra Bank has the highest at 22.1%.
Of Canara Bank’s total CAR of 16.2%, tier 1 stood at 14.3% while tier 2 stood at 1.9%, which is the second lowest after Kotak Mahindra Bank, which had only 1.2%. Among public sector banks, Union Bank has the lowest at 1.5%.