Money & Banking

Investors’ total AT-1 bond exposure to Indian banks at ₹93,000 crore: ICRA

PTI Mumbai | Updated on March 09, 2020 Published on March 09, 2020

Investors have total bets of over ₹93,000 crore on the additional tier-I bonds in Indian banks and a complete write-down proposed in the Yes Bank restructuring may lead to risk aversion, according to a report by domestic rating agency ICRA.

The report comes two days after IndusInd Bank virtually dropped a plan for the issue of the AT-1 bonds by deferring a board meet following the Yes Bank package by the RBI, implementation of which is set to erode investments.

As part of the SBI-led restructuring package announced by the RBI, there is a proposal to write down the entire outstanding on AT-1 bonds, which has been pegged at ₹8,695 crore by ICRA on Monday. Investors have reportedly approached the banking regulator seeking help.

The proposal is “likely to further increase the risk aversion of investors as the investors will factor in a higher probability of write-downs on these bonds”, ICRA said in the report.

Appetite for future issuances and also the investor base for future issuances will take a beating because of the move, it said.

A total of ₹93,669 crore of AT-1 bonds is outstanding as on date (₹84,574 excluding Yes Bank), of which ₹39,315 crore will be in private banks (₹30,620 crore excluding Yes Bank).

The largest outstanding is with SBI at Rs 27,432 crore, followed by ICICI Bank at ₹10,120 crore, while the immediate call option is coming up for Bank of Baroda on a ₹400 crore bond, it said.

Most of these bonds were issued in 2016-17 and 2017-18 with first call option after fifth year from issuance, which means large bonds are due for call in 2021-22 and 2022-23.

The reduction in the risk appetite for investors will constrain banks from rolling over these bonds by exercising call option and fresh issuance, it said.

In such an event, and also the absence of fresh issuances, the capital buffers over regulatory levels will decline by an estimated 1 per cent of risk weighted assets, it said.

The agency added that under the large exposure framework, exposure to single borrower or group of borrowers is linked to tier-1 capital, and reduction in tier-1 capital upon redemption of these bonds will also reduce the ability of the banks to take large exposures to a borrower group.

Published on March 09, 2020

A letter from the Editor


Dear Readers,

The coronavirus crisis has changed the world completely in the last few months. All of us have been locked into our homes, economic activity has come to a near standstill. Everyone has been impacted.

Including your favourite business and financial newspaper. Our printing and distribution chains have been severely disrupted across the country, leaving readers without access to newspapers. Newspaper delivery agents have also been unable to service their customers because of multiple restrictions.

In these difficult times, we, at BusinessLine have been working continuously every day so that you are informed about all the developments – whether on the pandemic, on policy responses, or the impact on the world of business and finance. Our team has been working round the clock to keep track of developments so that you – the reader – gets accurate information and actionable insights so that you can protect your jobs, businesses, finances and investments.

We are trying our best to ensure the newspaper reaches your hands every day. We have also ensured that even if your paper is not delivered, you can access BusinessLine in the e-paper format – just as it appears in print. Our website and apps too, are updated every minute, so that you can access the information you want anywhere, anytime.

But all this comes at a heavy cost. As you are aware, the lockdowns have wiped out almost all our entire revenue stream. Sustaining our quality journalism has become extremely challenging. That we have managed so far is thanks to your support. I thank all our subscribers – print and digital – for your support.

I appeal to all or readers to help us navigate these challenging times and help sustain one of the truly independent and credible voices in the world of Indian journalism. Doing so is easy. You can help us enormously simply by subscribing to our digital or e-paper editions. We offer several affordable subscription plans for our website, which includes Portfolio, our investment advisory section that offers rich investment advice from our highly qualified, in-house Research Bureau, the only such team in the Indian newspaper industry.

A little help from you can make a huge difference to the cause of quality journalism!

Support Quality Journalism
This article is closed for comments.
Please Email the Editor
You have read 1 out of 3 free articles for this week. For full access, please subscribe and get unlimited access to all sections.