Public-sector banks in India will need to raise additional capital worth Rs 43,000 crore in 2021-22.
Capital requirement has increased because the call option (the right but not the obligation to buy) for their additional tier 1 bonds (AT1 bonds worth) of Rs 23,000 crore is due in the next financial year, according to ICRA. Capital will be required to support credit growth also, because internal capital generation could remain weak even next year. The ability of public-sector banks to raise capital from the markets will be critical in reducing the government’s recapitalisation burden next year, it said.
Growth in bank credit is likely to pick up to 6-7 per cent in FY22 against an estimated 3.9-5.2 per cent in FY21 and 6.1 per cent in FY20. AT-I bonds, through perpetual in nature, have a call option available with the bank after five years from the time of issuance and every year thereafter (subject to regulatory approval). Investors typically invest in such bonds with the expectation that the call option will be exercised as and when it falls due.
The AT-I bond market for PSBs has revived in the current year with more state-run banks issuing such instruments than in the previous year.
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