Public sector lender IDBI Bank has raised Rs 1,900 crore through two separate Basel-III complaint tier-II bonds on private placement basis. The funds would help the bank to augment its capital adequacy ratio by about 55 basis points. This is in addition to Rs.1,000 crore raised on December 31, 2015 through the issue of similar bonds to Employees’Provident Fund Organisation (EPFO) but with 15 years tenure from the date of deemed allotment.
The second issue of Rs 900 crore concluded on January 2, with a tenor of 10 years. According to the bank, the central government has approved it to raise capital to the tune of Rs.3,771 crore through qualified institutional placement (QIP) at an appropriate time.
According to the bank, both the issues carry a coupon of 8.62 per cent per annum payable annually. In December, country’s largest lender State Bank of India (SBI) had raised Rs 4,000 crore by issuing tier-II bonds on private placement basis under the Basel-III norms. Last week, another state-run lender Bank of India raised Rs 3,000 crore by issuing Basel-III compliant tier-II bonds. Others lenders like Yes Bank, Canara Bank have also raised Rs 1,500 crore each by issuing Basel-III compliant tier-II bonds.
About Basel III Complaint bonds:-
The Reserve Bank of India introduced changes in bonds issued under Basel III international banking norms as a way to make it easier for banks to raise capital and also to make such bonds attractive for investors. As part of the changes, the minimum maturity period of such bonds have been reduced and banks have been allowed to tap retail investors. There are two kinds of debt papers under the Basel III norms. One boosts the core capital of banks, also known as tier-I capital debt, and another that boosts the secondary capital of bonds, known as tier-II instruments.
Earlier banks were not allowed to issue tier-I bonds to retail investors. They could only issue tier-II bonds that had a fixed maturity. The banks can issue any kind of papers to retail investors, including tier-I bonds and tier-II perpetual bonds, provided they made sure that such bond buyers fully understand the complexity and risks of such investment.
