By Ankur Mishra
Public sector bankers (PSBs) said they may not be able to raise fresh capital through perpetual bonds anymore, despite revised valuation norms released by the Securities and Exchange Board of India (Sebi). Bankers feel that the debt instrument is almost ‘dead’ as it will be seen as 100-year paper by market participants, against its basic nature of perpetuity. Sebi had earlier issued an amended circular to provide a glide path for treating the maturity of additional tier-1 (AT-1) bonds as 100 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) under 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 impact the capital-raising plans of public sector banks.
A week after the DFS wrote to Sebi, market regulator came with an amended circular on valuation norms of perpetual bonds. In its revised circular, Sebi said the maturity of perpetual bonds will be 10 years until March 31, 2022, and later the period will be increased to 20 and 30 years over the subsequent six months. From April 2023 onwards, the maturity of perpetual bonds will become 100 years from the date of issuance of the bond.
Another senior banker said the impact on the primary market and secondary market of perpetual bonds would be completely different. “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 said.
While AT1 bonds are issued by banks, NBFCs as well as corporates, public sector lenders are the largest 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.