Tag: FY22

Poonawalla Fincorp: Consolidated PBT up 151% YoY

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The board of Poonawalla Fincorp Limited (PFL) today announced its unaudited results for the quarter ended September 30, 2021 (Q2FY22).

PFL reported that assets under management grew by ~6 per cent QoQ to ₹15,275 crore, while NIM increased by 104 bps YoY to 9.1 per cent in Q2 of this fiscal (eight per cent in Q2 of FY21), driven largely by a reduction in interest expenses.

“Consolidated PBT was up 151 per cent YoY, increasing from ₹50 crore in Q2FY21 to ₹126 crore in Q2FY22, driven largely by a reduction in interest expenses and credit costs. Collections showed an improving trend from 93.1 per cent in June 21 to 98 per cent in July 21 and further to 99.9 per cent in September 21.

Consequent to improvement in collections in Q2of FY22, gross stage 3 and net stage 3 assets decreased from 5.4 per cent and 2.7 per cent, respectively, as at June 21 to 4.1 per cent and 2.0 per cent, respectively as at September 21 on a consolidated basis. The company has one of the best provision coverage ratios across all three stages. The standard asset coverage ratio as at September 21 stands at 3.4 per cent (3.0 per cent in September 20); Stage 3 asset coverage ratio stands at 52 per cent (38 per cent in September 20).

Liquidity and cost of borrowings

The company continues to maintain a strong liquidity position with around ₹1,700 crore of surplus liquidity, with additional term loan sanctions in the hand of ₹1,750 crore. A significant amount of existing loans were repriced in Q2FY22, with a reduction of over 120 bps. New sanctions received at sub-6.5 per cent. The company’s long-term rating was upgraded by two notches to ‘AA+; Stable’ by Care Ratings following its review process. The short-term rating was retained at the highest level of ‘A1+’.

Revised product focus

Pursuant to the capital infusion and rebranding, the Company launched new products like Personal loans, Loans to Professionals, and SME LAP. Other products at an advanced stage of roll-out are medical equipment loans, small ticket LAP, and co-lending/fintech partnerships.

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SBI General Insurance expects 20% growth in FY22

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SBI General Insurance is expecting close to 20 per cent growth in business in FY22 backed by a steady demand for health insurance products and an improvement in motor insurance starting third quarter of this fiscal.

In the first half (April-September), the non-life insurer had witnessed 14 per cent growth in gross direct premium underwritten to ₹4,129 crore, as compared with ₹3,620 crore in the same period last year, as per data available on the IRDAI website.

According to Prakash Chandra Kandpal, MD & CEO, SBI General, the non-life industry has come back to the pre-Covid level and has clocked a growth of around 13 per cent in the first half of this fiscal. “The industry is estimated to grow by around 15 per cent during the current fiscal driven mainly by health and motor. Though there may be some challenge for motor due to chip issue, Q3 should be good for motor insurance. We (at SBI General) expect to grow by around 20 per cent. The key areas of focus for us will be health, motor, SME and rural,” Kandpal told BusinessLine.

The second half of the fiscal is usually considered to be busy season and with the economy opening and with vaccination gaining pace, the insurer is hopeful of clocking a good growth.

Motor insurance accounts for nearly 25 per cent of SBI General’s total business; crop around 25-30 per cent; health close to 20 per cent; fire 15 per cent and others account for remaining 10-12 per cent.

Growing demand

Health insurance, which had been witnessing traction on the back of government initiatives such as Ayushman Bharat, came to the fore due to Covid related hospitalisation and the rise in medical cost. With the kind of effort given by the government in creating medical infrastructure in the country, the total health insurance industry is expected to double in the next three-to-four years.

“After the second wave we saw an increased interest in both retail as well as group health cover. Companies doubled the coverage for their employees. We are seeing a 40-50 per cent growth in health insurance industry portfolio and this trend is expected to continue moving forward as the uninsured population in India is still high,” he said.

This apart, a majority of the people who have health insurance, are not “adequately covered”. Most consumers in India have an average health cover of ₹ 3-5 lakh. However, the recent spike in hospitalisation and the increased medical cost is pushing more and more people to go in for a higher cover.

‘Claims spike’

On the claims side, the non-life insurers had witnessed a sudden spike in claims in Q1 of this fiscal due to the second wave. However, with the increase in vaccination and with people becoming more aware and paying more attention to health and fitness, the claims could be more manageable for insurers.

“The spike in claims was mainly because of the non-standardised protocol being followed by the medical industry. Moving forward we may see that the number of claims may increase but the average claims might be lower,” he said.

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Sundaram Finance eyes ‘decent’ growth in FY22 amid limited stress

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Sundaram Finance Ltd, a leading NBFC in the country, said it continues to see accounts from a few segments seeking restructuring and delinquency rates move northwards amid improving business.

Though business is returning to pre-second wave levels, there are still accounts up for restructuring, especially in the education and school bus segment, which is a fairly big portfolio for the company. Tourist buses have been impacted, as have inter-State buses.

In the car segment, tourist taxis have been impacted. In pockets, market load operators on haulage have been affected, said Rajiv Lochan, Managing Director, Sundaram Finance, in an exclusive interaction with BusinessLine.

As of March 31, the company had restructured 4.2 per cent of its portfolio, and this financial year it has further restructured 2.6 per cent. That is higher than industry. Delinquency rates increased to 4.2 per cent by the end of June.

“We are still quite good compared to the industry,” he added.

Growth complications

The first round of restructuring last year was in the commercial vehicle (CV) and bus segments.

Many who expected recovery in Q4 did not opt for it. Some school bus operators, inter-State bus operators and tourist buses expected recovery this year, but the second wave hit them hard and they have come for restructuring now.

The other complication is that viability of operators has been impacted. Freight rate has not increased in the last six months, there has been excess capacity in the system, return trips have been empty, and diesel prices have gone up. There are also Covid-related temporary issues.

Rallying business

Nevertheless, business has been picking up and getting better every succeeding month. September is also trending well.

“Compared to FY20, we will still do decent, especially if the third wave does not hit us too badly. We have to go granular. In terms of growth, that’s the thrust. We are seeing steady progress,” Lochan said.

There are a few segments that promise a favourable growth outlook for the company in the coming years. The tipper and construction equipment (CE) segments have picked up on the back of infrastructure activities.

Also see: Sundaram Finance presents favourable near-term outlook amid caution

“I expect a secular positive growth in the next three years in CE, which constitutes over 10 per cent of our business. It has gained momentum in the last three years and I see it gaining even more traction going forward. The agri-related segment (tractors or farm equipment) that constitutes about 7-8 per cent is doing well. Going forward, we expect to see double digit growth in this segment,” said Lochan.

Within the CV segment, the company has diversified into the intermediate CV, used CV, light CV and small CV segments over the last decade, and these are witnessing growth driven by e-commerce.

“We are seeing a nice momentum in this space. There is real action for us in these three asset classes. In the passenger vehicle segment, which constitutes 25 per cent of the business, we will ride with the wave,” Lochan added.

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Banks may see stress rising in retail, MSME segments by March, BFSI News, ET BFSI

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Domestic rating agency India Ratings on Tuesday maintained a stable outlook on the banking sector for 2021-22 while it expects an increase in stressed assets in retail and MSME segments by end-March.

It estimates gross non-performing assets (GNPA) of the banking sector to be at 8.6 per cent and stressed assets at 10.3 per cent for fiscal 2021-22.

“We have maintained a stable outlook on the overall banking sector for the rest of FY22, supported by the continuing systemic support that has helped manage the system-wide COVID-19 linked stress,” the rating agency said in its mid-year banks outlook released on Tuesday.

Banks will continue to strengthen their financials by raising capital and adding to provision buffers which have already seen a sharp increase in the last three to four years, it said.

Private banks

The agency said its stable outlook on large private banks indicates their continued market share gains both in assets and liabilities, while competing intensely with public sector banks (PSBs). Most have strengthened their capital buffers and proactively managed their portfolio.

Outlook on PSBs takes into account continued government support through large capital infusions (Rs 2.8 lakh crore over FY18-FY21 and further Rs 0.2 lakh crore provisioned for FY22), it said.

The agency has a negative outlook on five banks (about 6.5 per cent of system deposits), driven primarily by weak capital buffers and continued pressure on franchise.

It estimates that the asset quality impact in the retail segment has been higher for private banks with a median rise of over 100 per cent in gross NPAs over Q1 FY21 to Q1 FY22 (about 45 per cent for PSBs).

“Banks have also undertaken restructuring in retail assets (including home loans), which could have postponed an immediate increase in slippages. Overall stressed assets (GNPA + restructured) in the segment is expected to increase to 5.8 per cent by end-FY22,” the report said.

It said the MSME sector has been under pressure with demonetisation, introduction of GST and RERA, slowing down of large corporates and now COVID-19.

ECLGS stress

However, the government has supported the segment by offering liquidity under the Emergency Credit Line Guarantee Scheme (ECLGS) and restructuring, it said adding that it expects that beginning Q3 FY22, a portion of such advances would start exiting moratoriums a part of which could slip.

GNPAs of MSMEs is expected to increase to 13.1 per cent by end-FY22 from 9.9 per cent in FY21. Stressed assets similarly would increase to 15.6 per cent from 11.7 per cent.

For corporate segment, the agency estimates GNPAs to increase to 10.2 per cent and stressed asset to increase to 11.3 per cent.

The rating agency has kept its FY22 credit growth estimates unchanged at 8.9 per cent for FY22, supported by a pick-up in economic activity post Q1 FY22, higher government spending especially on infrastructure and a revival in demand for retail loans.

Last week, the agency had changed the outlook to improving from stable for retail non-banking finance companies (NBFCs) and housing finance companies (HFCs) for the second half of FY22.

It said non-banks have adequate system liquidity (because of regulatory measures), sufficient capital buffers, stable margins due to low funding cost and on-balance sheet provisioning buffers.

These factors provide ‘enough cushion to navigate the challenges that may emanate from a subdued operating environment leading to an increase in asset quality challenges due to the second covid wave impacting disbursements and collections for non-banks’, it had said.



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SBI report, BFSI News, ET BFSI

Personal Finance

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Mumbai, Aug 24 (PTI) The country’s gross domestic product (GDP) is expected to grow at around 18.5 per cent with an upward bias in the first quarter of the current financial year, according to SBI research report Ecowrap. This estimate is lower than the Reserve Bank of India’s GDP growth projection of 21.4 per cent for the April-June quarter.

“Based on our ‘Nowcasting’ model, the forecasted GDP growth for Q1 FY22 would be around 18.5 per cent (with upward bias),” the report said.

Higher growth in the second quarter of 2022, or Q1 FY22 is mainly on account of a low base.

State Bank of India has developed the ‘Nowcasting Model’ with 41 high-frequency indicators associated with industrial activity, service activity, and the global economy.

The report expects gross value added (GVA) to be at 15 per cent in Q1FY22.

The corporate results announced so far indicate that there is a substantial recovery in corporate GVA EBIDTA (earnings before interest, taxes, depreciation, and amortisation) + employee cost) in Q1 FY22, it said.

The report said the corporate GVA of 4,069 companies registered a growth of 28.4 per cent in Q1 FY22. However, this is lower than growth in Q4 FY21, thereby corroborating the lower GDP estimate than what was thought earlier, it said.

The report further said it is globally noted that lower mobility leads to lower GDP and higher mobility to higher GDP, but the response is asymmetric.

With the decline in mobility, the economic activity declines and thus GDP growth, however, with an increase in mobility the GDP growth does not increase in the same proportion, it said.

“The relationship between the two has become weaker as can be seen in Q1 FY22 when mobility has declined, however, GDP growth is high and positive. But higher y-o-y growth is mainly on account of the base effect,” the report said.

Meanwhile, the business activity index based on ultrahigh-frequency indicators show a further increase in August 2021, with the latest reading for the week ended August 16, 2021, at 103.3, it added.

RTO (regional transport office) collection, electricity consumption along with mobility indicators have revived in Q2 FY22, indicating positive momentum in economic activity going forward, the report said.



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ANZ Bank’s Mathur, BFSI News, ET BFSI

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NEW DELHI: The Governor of the Reserve Bank of India, Shaktikanta Das, said last year that the Covid-19 crisis is the sort of event that occurs once every 100 years. Policymakers from North Block to Mint Street have been attempting to find an adequate response to a crisis of this magnitude.

The Chief Economist, South East Asia and India at ANZ Bank, has a contrarian view.

In a chat with ETMarkets.com, Sanjay Mathur, a veteran economist, said the need of the hour is not capital spending that generates long-term gains. “Rather, what is important now and for years to come, is to lift people out of poverty, as that would have a larger impact on the economy,” he said.

“Let me take a controversial stand here. Our thinking on the fiscal has become somewhat stereotyped – capital spending is good and revenue spending is bad. And for FY22, the focus has been on capital spending. But the nature of the current crisis is different: it is a humanitarian crisis that calls for more massive welfare measures. A large section of our population has slipped into poverty, income and wealth disparities are rising,” Mathur said.

The government and RBI have unveiled various spending schemes since the pandemic struck last year; the flagship programme being the ‘Atmanirbhar Bharat’ scheme, which essentially prioritises import substitution.

However, out of the Rs 20 lakh crore announced by Prime Minister Narendra Modi, the actual fiscal outgo is very small. A bulk of the programmes are reflective of RBI’s liquidity infusion in the banking system, while the rest are mostly credit guarantees.

One cannot exactly blame the government, as its finances have been under strain since well before the pandemic.

In the last Budget, the government put aside the prescriptions of the Fiscal Responsibility and Budget Management Act and announced a fiscal deficit of 6.8 per cent of GDP for this financial year. The Centre had earlier set a target of 3.0 per cent fiscal deficit by 2017-18 (Apr-Mar).

However, it will not be accurate to say that the entire strain was on account of the pandemic. A year before Covid-19 wreaked havoc on the economy, the government had already skipped the targets it had set for itself under the FRBM Act, as tax collections fell short of targets.

Mathur said the government and the central bank together have done what they could within their constraints. “There was very little fiscal headroom to start with,” he said.

“So while I do acknowledge that asset creation has a larger multiplier on growth, this crisis is also unique and requires a different response,” he added.



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SBI’s Q1 profit jumps 55 pc to highest ever at Rs 6,504 cr, BFSI News, ET BFSI

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Mumbai (Maharashtra) [India], August 4 (ANI): Government-owned State Bank of India (SBI) on Wednesday reported its highest quarterly net profit of Rs 6,504 crore in the April to June quarter, marking an increase of 55 per cent in the year-ago period.

Operating profit increased by 5 per cent to Rs 18,975 crore in Q1 FY22 from Rs 18,061 crore in Q1FY21. Net interest income increased by 3.7 per cent year-on-year.

On the other hand, non-interest income at Rs11,803 crore grew by 24 per cent, said the country’s largest lender in a statement.

Total deposits grew at 8.82 per cent to reach Rs 37.2 lakh crore in Q1 FY22 from Rs 34.2 lakh crore in Q1 FY21. While current account deposits grew by 11.75 per cent, saving bank deposits grew by 10.55 per cent.

Domestic credit growth stood at 5.64 per cent, mainly driven by retail customers. Home loans, which constitute 23 per cent of the bank’s domestic advances, moved up by 11 per cent.

SBI said net NPA ratio stood at 1.77 per cent, down by 9 basis points. Gross NPA ratio came at 5.32 per cent, down 12 basis points.

The slippage ratio for Q1 FY22 is at 2.47 per cent from 0.6 per cent as at the end of Q1 FY21. Credit cost declined 77 basis points year-on-year to 0.79 per cent.

Cost to income ratio declined from 54.5 per cent in Q4 FY21 to 51.89 per cent in Q1 FY22 but increased by 187 basis points year-on-year, said SBI.

Capital adequacy ratio improved by 26 basis points to 13.66 per cent as on June 2021. Return on assets increased by 15 basis points to 0.57 per cent in Q1 FY22 against 0.42 per cent in Q1 FY21.

Return on equity increased by 357 basis points to 12.12 per cent against 8.55 per cent in the same period.

At 2:15 pm, SBI stock was trading 3.6 per cent higher on NSE India at Rs 462.55 per unit. (ANI)



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Dinanath Dubhashi, L&T Finance, BFSI News, ET BFSI

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The strength we have built up was a strong balance sheet with good provisioning, said Dinanath Dubhashi, MD & CEO, L&T Finance Holdings. “We had just raised the rights issue, built business strengths, built collection strengths, and built strengths on the liability side and each one of this was tested in quarter one,” he added. Edited excerpts:

Though it has been a tough patch for all, both personally and professionally, you have managed to grow 20% year on year. Let us talk about what has led to this growth.
I would take this to last time I spoke with your channel, and that was at the end of the Q4 results. We had mentioned at that time that a few things that the company is doing is going beyond the profits and quarterly performance. That is to make sure that we build strengths which will help us to do well in the medium-to-long term, but also deal with any short-term problems which come. And the short-term problems came.

So, the strength we have built up was a strong balance sheet with good provisioning. We had just raised the rights issue, built business strengths, built collection strengths, and built strengths on the liability side and each one of this was tested in quarter one. Quarter one was very strange. First 15 days of April were absolutely okay. The second 15 days of April, entire May, and maybe the first 15-20 days of June were very bad in the sense. I mean forget business, people were afraid for their lives and we all know that. Then again, things have started improving towards the end of June and July they have improved even further.

The strengths that we have built have manifested. As you rightly put: profits are up 20%. Now I must also say that we are comparing to last year first quarter, which was also a bad quarter. So, I must be upfront about that. But still, a COVID quarter to COVID quarter 20% growth is a good performance. There are some things which have happened even better. We, even in this climate, in our rural book we have had our best ever first quarter disbursements. Even though for a month, month-and-a-half, everything was closed, we got our best ever first quarter disbursements. Our rural book is actually up by 8%. We have seen some run downs and some procurements in our infra book which has actually taken our retailisation quickly up to around 46%. These are the good things.

Second is cost of liabilities. The liability franchise we have built and cost of liabilities have remained very well in control. In fact, they have remained at the same level as in Q4 and substantially below last year Q1. All this has led to a good growth and before provision stage which has enabled us to take further anticipatory provisions, or what we call macro prudential functions, and make our balance sheet stronger.

Last year what we did was we built our macro prudential provision in the first two quarters and the last two quarters we reversed, which actually helped us. This method of taking early provisions and then using them helped us. We are doing that again. We have taken around 370 crores, but God forbid if a COVID wave three comes and I do not think anybody can predict that we will be ready and that balance is what actually signifies the importance of this quarter’s result. Of course, the icing on the cake is the 20% profit growth.

Why is that your NPAs for the quarter have gone up by nearly 75 bps? If one looks at the provisioning cover, it has changed.
Most definitely, in the COVID quarter the gross NPAs are going up, which is no surprise. I mean, it is a COVID quarter, so that is one thing. But if you observe carefully and compare year on year, the absolute amount of gross GST has actually come down. It is basically because the book has gone down, as I told you, the ratio has gone up. Just to point that out: the overall gross stage three absolute amount has actually come down a little bit, or let us say remained the same year on year. That is the first thing.

It is no surprise and I would not like to defend that that gross stage three will go up in a COVID year or in a COVID quarter, and hence what we need to do. And you never know, that trend may continue. We are hoping that it will reverse, but it may continue. Because of that what is important is we create additional provisions. Now provision coverage on NPA is a function of ECL model. So, it can go 3-4% up and down. But if you count our Rs 1,400 crore of additional provisions, which is there now on the balance sheet on standard assets, that prepares us tremendously for any NPA increase which may happen and that is the point that I am trying to make.

Rather than a quarter on quarter changing NPA in any COVID wave and especially the wave that was where customers were afraid, frankly our people were afraid of going out for a month or so. There were restrictions on movement, so most definitely it will affect. The important point is that we have made anticipatory provisions and are ready to phase any further effect of this that may happen. The positive side is businesses are picking up and rural India is definitely picking up. Most importantly, our people are now more than 90% vaccinated. We did a big campaign and more than 20,000 are now vaccinated and hence more able to travel. I think the medium-term prospects look good.

Given the second COVID wave is receding, can we say that the worst of the impact as far as collections or asset quality go is over?
I will talk both business as well as collections. Business farm, that is tractors, have started recovering very quickly. The important thing is the manufacturer space, there were supply chain problems last year in the first quarter. This year there were no supply chain problems. The manufacturing and the production were happening. So, the question was whether point of sales is open, tractor dealerships are opened, and two-wheeler dealerships are open. The rural dealerships opened earlier and the business started faster. The urban dealerships are just opening and we hope that the business will start from here.

If you talk about micro loans, as collection picks up, then disbursement will also pick up there. Housing definitely, again, lots of registration offices were closed. People were unable to visit sites to go and buy a house. Buyer and seller meetings were a problem. All these kept quarter one at a fairly low level. Slowly, these things are picking up, but the important thing is collections. Actually, the collection efficiencies which we have shown and we have put in the presentation have, other than micro loans, improved between May and June. All the other products – and that is important – and micro loans did not improve in June, but already in the first 15 days of July it has improved and substantially.

I would not be crystal ball gazing and say the worst is over. I think this can be the famous last words going by our COVID two experience. But most definitely, in most products June looked better than May and July is certainly looking better. Now yes, if a COVID wave three comes, who knows. I mean nobody was able to predict wave two, so I do not think anybody will be able to predict wave three. Hence, we should be prepared in all the aspects of the company. But to answer your question in one short sentence, July is definitely looking better than June.

In Q1 L&T achieved NIMs plus fees of 7.52%. What is your outlook for margins in FY22 given the uncertain environment?
Margins is a question of two things: one is interest cost, and I have said that our treasury has done extremely well. Q4 we thought was the lowest ever, and in Q1 we have done at the same level. We have reduced it maybe 1 bps, but that would be very good. The second good thing we have done is actually using this low interest cost regime locked into good medium-to-long term funds. Hence, we believe that even if the host of funds will definitely slowly go up from Q2 onwards, the trajectory will be lower and we will be able to retain our margin.

The second is a mix between retail and wholesale. As we said, at this time our infra business and infra book actually degrow. Infra book degrow and the rural book grew because of that the product mix move towards higher margin products. To answer your question, 7.5 is definitely way above what we guide, but yes, I do not think it should fall way below 7% or anything like that. We always guide between 6.5% to 7%, and we should be able to stay on the higher end of that guidance.



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Ind-Ra, BFSI News, ET BFSI

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The imposition of stricter measures on mobility across states in the wake of the second wave of COVID-19, India Ratings and Research (Ind-Ra) had opined in May 2021 that the overall microfinance sector’s collections could lead to a drop by a cumulative 10%-15% during the month compared to March 2021.

However, the collection lag in the second half of May 2021 was more severe than the agency’s initial estimates, and hence, collections during the month were down by 60%-70% for many microfinance institutions (MFIs). Accordingly, Ind-Ra has revised the MFI sector’s credit cost estimate range for FY22 to 5%-10% from 3%-6%, depending on the geographies of operations/concentration.

Nevertheless, Ind-Ra believes that most of the large MFIs rated by the agency would be able to absorb this through their income statement, with minimal impact on equity. The difference in the performance of the companies operating in this sector will be based on the funding available to them. Ind-Ra believes that larger MFIs with a diverse customer base are better placed to raise funding at competitive costs, and hence, reiterates its Stable Outlook for large and group-owned MFIs and a Negative Outlook for the rest for FY22.

During June 2021, with the lifting of restrictions in the first half of the month in the northern and western states of India, there was a modest improvement in the collection efficiencies of those regions. In the southern states, however, the restrictions began to ease very slowly only towards the second half of June 2021. In fact, the daily number of COVID-19 cases in Kerala is on an increasing trend again.

Overall, for a diversified portfolio, the collections in June 2021 are likely to have been higher by 5%-10% compared to May 2021. The restrictions continue to be tighter in the states of Kerala and Tamil Nadu due to slow control over COVID-19 cases. Against this backdrop, Ind-Ra expects south India-based MFIs (including small finance banks) to witness larger shortfalls in collections in 1QFY22 compared to those operating in other regions.

Ind-Ra expects the collection efficiency trends to improve over July-August 2021 compared to June 2021, given that around 70% of the borrowers of most MFIs are in the essential goods and services segments, and also taking into consideration the trends witnessed during the first wave of COVID-19. That being said, the variations in the performance of MFIs could be wider, depending on their level of concentration in regions where the lifting of restrictions could be slow.

As far as fresh disbursements are concerned, MFIs significantly curtailed their disbursements during April-May 2021 and the initial two weeks of June 2021. However, Ind-Ra’s discussions with MFIs suggest that the operations are gradually picking up on the back of improved mobility, with the staff slowly regaining the confidence to venture into the field. This by itself would aid the recovery efforts for MFIs.



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Top banks eye overseas AT1 bond sale as domestic investors turn wary, BFSI News, ET BFSI

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As mutual funds turn wary of AT1 bonds, banks are looking overseas to raise capital through the instrument.

Five top lenders, including HDFC Bank, Axis Bank and State Bank of India, are looking to raise up to $2 billion overseas in the next few months through Additional Tier I (AT1) as they anticipate an increase in credit demand.

State Bank of India, plans to raise upto Rs 14,000 crore through additional tier-I bonds (AT1 bonds) in the current financial year (FY22) to enhance capital adequacy profile.

The Central Board approved the capital raise by way of issuance of Basel lll-compliant debt instruments in rupee and/or US dollar in FY22, the bank said last month.

Canara Bank is planning to raise up to Rs 3,400 crore in capital by issuing fresh AT1 bonds.

These bonds are expected to offer yields between 4 per cent and 5 per cent. Covering currency risks, the total cost may go up to 9 per cent.

AT1 bonds

AT1 bonds, also known as perpetual bonds, add to a bank’s capital base and allow a lender to meet fund adequacy thresholds set by regulators. Such securities do not have any fixed maturity but generally have a five-year call option, giving defined exit routes to investors. These papers are always rated one or two notches below the same issuer’s

general corporate rating. Domestic investors, including mutual funds, are wary of AT1 bonds after Yes Bank wrote off over Rs 8,000 crore of such bonds during its bailout in 2020.

State Bank of India was the only bank from the country to raise AT1 bonds overseas in 2016. Five-year call options on that series of AT1 bonds could be exercised this year.

Between FY18 and FY21, perpetual bond sales by banks have nearly halved to Rs 18,772 crore from Rs 34,860 crore three years ago. In FY22, AT1 bond sales have so far been negligible.

Sebi directive

Capital market regulator Sebi has eased the valuation rule pertaining to perpetual bonds in March last year.

The move came after the finance ministry asked the Securities and Exchange Board of India (Sebi) to withdraw its directive to mutual fund houses to treat additional tier-I (AT-1) bonds as having maturity of 100 years as it could disrupt the market and impact capital-raising by banks.

Sebi said the deemed residual maturity of Basel III AT-1 bonds will be 10 years until 31 March, 2022, and would be increased to 20 and 30 years over the subsequent six-month period.

From April 1, 2023, onwards, the residual maturity of AT-1 bonds will become 100 years from the date of issuance of the bonds.

In addition, Sebi said that deemed residual maturity of Basel III Tier 2 bonds would be considered 10 years or contractual maturity, whichever is earlier, until March 2022. After that, it will be in accordance with the contractual maturity.

AT-1 bonds are considered perpetual in nature, similar to equity shares as per the Basel III guidelines. They form part of the tier-I capital of banks.



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