ICRA expects issuance of AT1 bond issuances to go down in FY2023

23 Aug 2022 , 09:24 AM

From a record high of around Rs428 billion in FY2022, the extra tier 1 (AT1) bond issuances are probably going to decline sequentially to about Rs 200 billion in FY2023. A majority of the issuances were related to refinancing commitments of issues in FY17, therefore the issuances increased in FY22.

The existing AT-I bonds on July 31 totaled Rs. 1.02 trillion, net of additional issues and redemptions between April and July 2022. The outstanding AT-I bonds are anticipated to be over Rs1.1 trillion by March 31, 2023, with roughly Rs200 billion in forecast issuances throughout FY2023 and Rs94.0 billion in anticipated redemptions between August—March 2023.

“While private sector issuances are anticipated to be modest depending on market conditions, public sector banks are anticipated to raise Rs 201 billion in AT-I bonds during FY2023. In contrast to FY2022, when rollover requirements dominated issuances, growth requirements dominate issuances by public banks in FY2023 “ICRA Vice President Anil Gupta said.

Public banks’ improved financial standing and increased capacity to service AT-I bonds have increased investor interest in them after setting off their cumulative losses against their share premium account. The coupon on the most recent bonds is higher than the coupon on the FY2022-issued bonds, but it is still lower than the rates on the earlier FY2017 and FY2018-issued bonds.

Of the Rs253 billion planned call option on AT-I bonds during FY2023, Rs180 billion are held by private banks. If any, it is unlikely that private banks will issue more than Rs50 billion.