Public-sector banks in India will need to raise additional capital worth Rs 43,000 crore in 2021-22.
Capital requirement has increased because the call option (the right but not the obligation to buy) for their additional tier 1 bonds (AT1 bonds worth) of Rs 23,000 crore is due in the next financial year, according to ICRA. Capital will be required to support credit growth also, because internal capital generation could remain weak even next year. The ability of public-sector banks to raise capital from the markets will be critical in reducing the government’s recapitalisation burden next year, it said.
Growth in bank credit is likely to pick up to 6-7 per cent in FY22 against an estimated 3.9-5.2 per cent in FY21 and 6.1 per cent in FY20. AT-I bonds, through perpetual in nature, have a call option available with the bank after five years from the time of issuance and every year thereafter (subject to regulatory approval). Investors typically invest in such bonds with the expectation that the call option will be exercised as and when it falls due.
The AT-I bond market for PSBs has revived in the current year with more state-run banks issuing such instruments than in the previous year.
Business Standard has always strived hard to provide up-to-date information and commentary on developments that are of interest to you and have wider political and economic implications for the country and the world. Your encouragement and constant feedback on how to improve our offering have only made our resolve and commitment to these ideals stronger. Even during these difficult times arising out of Covid-19, we continue to remain committed to keeping you informed and updated with credible news, authoritative views and incisive commentary on topical issues of relevance.
We, however, have a request.
As we battle the economic impact of the pandemic, we need your support even more, so that we can continue to offer you more quality content. Our subscription model has seen an encouraging response from many of you, who have subscribed to our online content. More subscription to our online content can only help us achieve the goals of offering you even better and more relevant content. We believe in free, fair and credible journalism. Your support through more subscriptions can help us practise the journalism to which we are committed.
Support quality journalism and subscribe to Business Standard.