PNB, BoB, Syndicate to raise ~7,000 crore via AT-1 bonds Downgrade cloud on Syndicate Bank
Three government-owned lenders — Bank of Baroda (BoB), Punjab National Bank (PNB) and Syndicate Bank — are raising a total of ~7,000 crore through Tier-I bonds, to bolster their Capital Adequacy Ratio (CAR).
Delhi-based PNB is raising up to ~3,000 crore, Mumbai-based BoB will issue AT-1 bonds for ~3,000 crore and Manipal-based Syndicate will raise about ~1,000 crore.
Under Basel-III norms, a bank’s capital comprises two tiers. Tier-I or core capital has two components — common equity (CET-1) and hybrid capital, combining features of equity and debt, termed additional Tier-I capital (AT-1). Tier-II is supplementary capital. A bank’s strength to withstand or absorb stress is measured by the level of Tier-I capital.
According to rating agency ICRA, banks in India raised ~45,290 crore in capital by issuing AT-1 bonds in 2016-17. Of this, public sector banks raised ~34,865 crore and private banks ~10,925 crore. BoB As for BoB’s AT-1 bonds, ratings agency CRISIL has assigned one of ‘AA+/Negative’. Analysis of the medium-term impact on reserves in a stress scenario shows these will remain comfortable, it said. BoB’s provision coverage ratio (excluding technical write-offs), at 57.7 per cent as on end-March, is significantly higher than peers. This cushions it from potential stress on the portfolio.
The change in the Reserve Bank of India (RBI) guidelines has broadened the eligible pool of reserves for making coupon payments on these instruments.
The ‘Negative’ outlook reflects belief that profitability will remain modest over the medium term. BoB remains adequately capitalised, with Tier-I and total CAR (under Basel-III) of 9.93 per cent and 12.24 per cent, respectively as of March 31, 2017. They were 10.79 per cent and 13.17 per cent, respectively, a year before.
The Government of India’s (GoI’s) ownership, at 59.24 per cent in BoB as of endJune, provides moderate flexibility to raise equity capital by diluting this stake over the medium term. Others As for PNB, CRISIL has assigned a ‘AA/Negative’ rating to the ~3,000-crore TierI bonds (under Basel-III).
CRISIL said it had evaluated the adequacy of PNB’s eligible reserves to service the coupon, after adjusting for any medium-term impact of profitability on the reserves in a stress scenario. The latter position will remain comfortable. The negative outlook reflects continued pressure on asset quality and earnings profile, it added.
PNB’s capitalisation is adequate, with Tier-I and overall CAR at 8.9 per cent and 11.66 per cent, respectively, as on end-March. These were 8.41 per cent and 11.28 per cent, respectively, a year before, CRISIL said.
Syndicate Bank is raising about ~1,000 crore via AT-1 bonds, and India Ratings has assigned an ‘AA/Negative’ rating. Its CAR at end-March was 12.06 per cent, up from 11.16 per cent a year before. India Ratings has downgraded its outlook on Syndicate Bank’s existing Tier-I and Tier-II bonds from ‘stable’ to ‘negative’, due to a weakening credit profile of the Manipal-based public sector lender. The revision reflects a perception of elevated levels of credit costs, stretched profitability and limited visibility on meaningful capital infusion. Syndicate’s Common Equity-1 level of 7.5 per cent at end-March was weaker than other ‘AA+’ rated peers. The bank would need ~ 4,640 crore of Tier-I capital to maintain a Tier-I ratio of 10 per cent (including a capital conservation buffer of 2.5 per cent) by the end of 2018-19. ABHIJIT LELE