MUMBAI: A new risk has crept into investments of fund houses and insurance companies that have put money in 'perpetual tier I bonds' floated by state-owned banks a year ago.
The tricky nature of the investments owes its origin to a new rule that many may have missed. It's like this: If an issuer (say, a bank) suffers loss in a financial year, it must take permission from the Reserve Bank of India to pay interest to bond holders. This is part of a special condition laid down under Basel .. II norms, a global capital standard for banks.
In the July-September quarter - United Bank of India and Central Bank of India, the PSU lenders that have issued perpetual bonds - posted losses of Rs 489 crore and Rs 1,509 crore, respectively. They closed the April-June quarter with profits as small as Rs 44 crore and Rs 21 crore.
Now, if these banks don't end fiscal 2013-14 with profits, they will have to seek permission from the RBI. "From the perception side, risk has increased," said Karthik Srinivasan, cohead financial sector ratings at ICRA.
Banks raise capital through different means to support their capital adequacy ratio which, according to regulatory requirement, should not fall below the mandated 9%. This means a bank must have own funds of Rs 9 for every Rs 100 that it lends to borrowers.
Banks raise capital through different means to support their capital adequacy ratio which, according to regulatory requirement, should not fall below the mandated 9%. This means a bank must have own funds of Rs 9 for every Rs 100 that it lends to borrowers.
In December 2012, United Bank, which was rated AA then, had raised Rs 300 crore offering 9.27% to bond holders. Central Bank, rated AA+ (stable), had promised a coupon of 9.4% to raise Rs 500 crore in September 2012, according Prime Database. Yes Bank and IDBI Bank had issued similar Basel II- compliant securities to raise Rs 290 crore andRs 850 crore, respectively.
Credit rating companies have downgraded recent issues of tier II bonds by the two PSU lenders while revising the rating outlo .. Read more at
No comments:
Post a Comment