By Ankur Mishra
Public sector bankers (PSBs) mentioned they may perhaps not be in a position to raise fresh capital via perpetual bonds any longer, regardless of revised valuation norms released by the Securities and Exchange Board of India (Sebi). Bankers really feel that the debt instrument is virtually ‘dead’ as it will be noticed as one hundred-year paper by market place participants, against its standard nature of perpetuity. Sebi had earlier issued an amended circular to provide a glide path for treating the maturity of further tier-1 (AT-1) bonds as one hundred years.
“There is no chance for any fresh issuance of perpetual bonds by banks in near future, as you would reckon it as 100-year paper only,” a senior public sector banker told FE. “Therefore, it doesn’t serve the cause of the people in the primary market, and effectively, this instrument is almost dead.”
The Department of Financial Services (DFS) below the finance ministry had earlier asked Sebi to withdraw the valuation norms for perpetual bonds. The DFS in its memorandum to Sebi on March 11 had argued that the circular will adversely influence the capital-raising plans of public sector banks.
A week just after the DFS wrote to Sebi, market place regulator came with an amended circular on valuation norms of perpetual bonds. In its revised circular, Sebi mentioned the maturity of perpetual bonds will be 10 years till March 31, 2022, and later the period will be enhanced to 20 and 30 years more than the subsequent six months. From April 2023 onwards, the maturity of perpetual bonds will come to be one hundred years from the date of issuance of the bond.
Another senior banker mentioned the influence on the major market place and secondary market place of perpetual bonds would be fully diverse. “There would be an opportunity in the secondary market to pick up these perpetual bonds whoever has risk appetite to hold such bonds in their portfolio,” he mentioned.
While AT1 bonds are issued by banks, NBFCs as effectively as corporates, public sector lenders are the biggest issuers of perpetual bonds. According to ICRA’s estimates, the total stock of AT-I bonds outstanding was Rs 1.03 lakh crore as on February 28, 2021, of which 70% was issued by public sector banks.