Indian lenders, however, have limited dependence on such securities, Jefferies said in a note. "Another instance of AT-1 bond write-off questions seniority of claims of AT-1 bond holders and dampens sentiments for AT-1 market issuances," Citi analysts wrote in a note. AT-1 bonds are hybrid securities which have loss absorbing features and can be written-down under certain scenarios, including a depletion of capital.
The AT-1 bonds of India's Yes Bank were written down in March 2020 after the Reserve Bank of India initiated a restructuring of the lender with some value attributed to the bank's equity. Despite the YES Bank precedent, Indian banks have raised AT-1 bonds at 65-75 basis points premium over government bonds, Citi said.
Banks AT-1 capital Risk-weighted AT-1 capital (In billion assets (In as % of RWA rupees) billion rupees)
Private Banks
HDFC Bank 123 15,363 0.80%
ICICI Bank 51 10,414 0.50%
Axis Bank 48 7,953 0.60%
IndusInd Bank 15 3,225 0.50%
YES Bank -- 2,441 0%
State-run
banks
State Bank of 415 26,940 1.50%
India
Canara Bank 124 5,573 2.20%
Punjab 87 6,361 1.40%
National Bank
Bank of India 29 3,406 0.80%
Indian Bank 20 3,227 0.60%
Source: Jefferies
Indian state-run banks have a higher share of AT-1 bonds as
compared to private bank, according to Jefferies.
Since the Yes Bank episode, the issue of such papers has
slowed as the investors leaned towards larger, high-quality
banks, it said.
"Among banks, top-3 issuers are SBI, HDFC Bank and Canara
Bank with PSU (Public Sector Undertaking)banks having higher
contribution from this," the Jefferies report said, adding that
smaller banks have a lower contribution from AT-1 bonds. "Local
bond markdet investors aren't really seeing risks here for
Indian stocks."
(Reporting by Bhakti Tambe; Editing by Dhanya Ann Thoppil)
