Punjab National Bank raised Rs.1859 crore capital

Punjab National Bank, a public sector lender, has successfully raised a capital of Rs 1,859 crore through the issuance of additional tier I bonds (AT-I bonds). This move aims to meet regulatory requirements and support the bank’s business growth. The coupon rate for these bonds has been fixed at 8.47 percent.

Additional Tier 1 (AT1) bonds are a type of debt instrument issued by banks to strengthen their core equity base and comply with Basel III norms. These bonds were introduced after the global financial crisis to enhance the protection of depositors. Unlike traditional bonds, AT1 bonds do not have a fixed maturity date and are considered perpetual in nature. They offer higher returns to investors but also carry a higher level of risk compared to other debt instruments. AT1 bonds are a form of perpetual debt that helps banks raise capital during financial crises. They are a component of a bank’s permanent capital and are classified as Additional Tier 1 capital under Basel III norms. These bonds are unsecured and subordinate to other debt but senior to common equity. They can be redeemed by the bank through a call option after a specified period, typically five years. AT1 bonds play a crucial role in bolstering a bank’s capital base and ensuring compliance with regulatory requirements.

While the amount raised falls slightly short of the initially projected Rs 2,000 crore, bond market sources have confirmed that Punjab National Bank managed to secure a significant capital infusion. The base issue size of the bonds was set at Rs 500 crore, with an additional green issue option of Rs 1,500 crore. Moreover, these bonds have a call option available at the end of the fifth year.

The credit rating agency ICRA has assigned an “AA+” rating to Punjab National Bank’s AT-I bonds, further highlighting the bank’s solid financial position.

In line with its plans for the current financial year (FY24), the bank’s board has granted approval to raise up to Rs 7,000 crore through tier I bonds. As of December 2023, Punjab National Bank had already issued AT-I bonds worth Rs 4,153 crore, as stated in the bank’s Q3FY24 presentation. At that time, the bank’s capital adequacy ratio stood at 14.63 percent, with a tier I ratio of 11.73 percent. The Common Equity Tier I (CET1) ratio was reported at 9.86 percent, while the AT-I ratio was at 1.87 percent.

According to data from the Prime database, banks collectively raised an impressive Rs 14,504 crore through AT-I bonds until mid-March of the current financial year. Notably, lenders had raised a total capital of Rs 34,394 crore through AT-I bonds during FY23. This demonstrates the significance of these bonds in bolstering the capital base of financial institutions.