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
India's state-run banks have a higher share of AT-1 bonds as
compared to private banks, according to Jefferies.
Since the Yes Bank episode, the issue of such papers has slowed as 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 market investors aren't really seeing risks here for Indian stocks."
However, the state-run banks' common equity Tier-1
capital ratios are low and a weak AT-1 bond market could
necessitate equity capital raising, particularly in the case of
the State Bank of India, Macquarie analysts said on Tuesday.
(Reporting by Bhakti Tambe; Editing by Dhanya Ann Thoppil)
