Punjab National Bank (PNB), a government-owned bank, successfully raised funds of Rs 3,090 crore on Tuesday through the issuance of 15-year tier-II bonds. Informed sources have revealed that the cutoff rate, representing the interest rate paid to investors, was set at 7.74 percent.
These bonds include a call option, which can be exercised after 10 years from the date of allotment. Initially, PNB had planned to issue bonds with a base size of Rs 1,000 crore, with an additional green shoe option of Rs 3,000 crore.
In a related development, the Small Industries Development Bank of India (SIDBI), a financial institution, has managed to secure Rs 3,000 crore by selling bonds that will mature in September 2026.
The interest rate on these bonds, according to sources, has been fixed at 7.55 percent.Sources indicate that the State Bank of India (SBI), the country’s largest lender, is making preparations to enter the debt capital markets in the near future.
It is expected that SBI will issue additional tier-1 bonds as part of its fundraising efforts.
What are Tier II Bonds?
Tier 2 bonds are a type of loan that banks and financial institutions take from investors to get more money. These bonds are a way for banks to strengthen their financial position and have a safety net in case they face any losses.
The important thing to know about Tier 2 bonds is that they come with certain rules. One rule is that if a bank goes bankrupt or can’t pay its debts, the people who invested in Tier 2 bonds will be paid back after other important debts are settled. So, they are lower in priority.
Another thing is that Tier 2 bonds have a longer time period before they can be paid back. They might last for many years, and during that time, the investors will receive regular payments of interest.
Sometimes, the bank may have the option to pay back the bonds earlier than planned. This is called a call option, and it gives the bank more flexibility in managing its finances.
Overall, Tier 2 bonds help banks stay financially strong and meet certain rules set by regulators. They are like loans from investors that give banks more security and help them handle any financial difficulties they may face.