Private banks refrain from issuing AT-1 bonds in domestic market

By Manish M Suvarna,Even as state-owned banks are tapping the corporate bond market with additional tier-1 (AT-1) bonds, private banks have stayed away, as demand from mutual funds continues to be muted after the write-down of Yes Bank’s perpetual bonds last year.,Some private banks are instead opting for overseas markets for fundraising, given that interest rates are low. Recently, HDFC Bank and Axis Bank issued AT1 bonds in overseas markets – Axis Bank raised $600 million and HDFC Bank mopped up $1 billion.,“After valuation norms as made applicable for perpetual bonds, mutual funds have been staying away. Market appetite has improved a bit from wealth clients, but that’s only for the safest banks like State Bank of India (SBI), Bank of Baroda, Canara Bank and Union Bank. Private banks have opted to access the overseas market for the want of better quantum at right pricing,” said Ajay Manglunia, MD and head of institutional fixed income at JM Financial.,At present, nearly three-four state-owned banks are looking to issue tier-1 bonds. PSBs looking to tap the corporate bond market with AT-1 issuances include SBI, Union Bank, Canara Bank and BoB. They plan to cumulatively raise more than Rs 10,000 crore via tier-1 bonds.,The market sentiment for select PSBs revived after Sebi earlier this year amended the rule of perpetual bonds. The deemed residual maturity of Basel-III AT-1 bonds would be 10-year until March 31, 2022. Sebi said from April to September 2022, it would be valid at 20 years, and from October 2022 to March 2023, it would have a life span of 30 years. From April 2023, the residual maturity will be 100 years from the date of issuance of the bond.,Soon after this, SBI issued AT-1 bonds at the lowest coupon, which was followed by other banks.,