ICRA Ratings in its latest report has said that the issuance of Additional Tier-1 (AT-1) bonds by banks is likely to more than halve to Rs 20,000 crore this fiscal (FY23) compared to the all-time high amount of Rs 42,800 crore raised in FY22. AT-1 bonds are those debt instruments without a terminal maturity date. In FY22, a majority of the funds raised through the instrument were to refinance bond issues done in FY17.
According to the report, majority of the bonds have a call option in the fifth year, resulting in the significant jump in new issuances which are basically for refinancing the earlier obligations. The issuances in FY17 stood at Rs 32,100 crore for the state-owned banks and Rs 10,900 crore for private sector lenders. In FY18, the amounts stood at Rs 10,900 crore and Rs 23,500 crore, respectively.
The report further said lenders have already refinanced the FY18 bonds because of the lower interest rates in FY22. Lenders have already raised Rs 5,320 crore from the instrument in the first four months of FY23. As the net of new offerings and redemptions between April and July 2022, the AT-1 bonds outstanding as on July 31 was Rs 1.02 lakh crore and is expected to touch Rs 1.1 lakh crore by March 31, 2023.
