Synopsis: Axis Bank plans to raise Rs. 3,000 crore through additional tier-1 (AT-1) bonds to bolster its core equity capital. This move comes as the bank faces higher credit growth compared to deposit growth, prompting a reliance on bond sales.
Axis Bank to Raise ₹3,000 Crore via AT-1 Bond Sale:
In a strategic move to enhance its core equity capital, Axis Bank is set to raise up to Rs. 3,000 crore through the issuance of additional tier-1 (AT-1) bonds in the coming days, according to market sources.
This capital infusion is crucial for the private sector lender, especially amid a scenario where credit growth is outpacing deposit growth.
The bond issuance is expected to have a base size of Rs. 1,000 crore with a greenshoe option of an additional Rs. 2,000 crore.
According to a source, the details of the bond issuance will be uploaded on the electronic platform shortly.
The bonds are expected to come with a call option of 10 years, providing investors with a long-term capital investment opportunity.
The coupon rate, or the interest paid out to bondholders, is likely to range between 8.30% and 8.35%, depending on market demand.
This rate is relatively higher than other debt instruments due to the higher risk associated with AT-1 bonds.
Earlier in September, Axis Bank successfully raised Rs. 3,925 crore through the sale of 10-year infrastructure bonds at a coupon rate of 7.45%, underscoring its efforts to meet long-term capital requirements.
Understanding AT-1 Bonds:
AT-1 bonds are perpetual debt instruments with equity-like features, allowing banks to absorb losses in cases of severe financial stress.
They are considered riskier than traditional bonds, which is why banks generally offer higher interest rates to attract investors.
These bonds play a critical role in strengthening a bank’s capital base, particularly in times of rapid loan growth or financial volatility.
Rising Credit Demand vs. Slower Deposit Growth:
In recent years, the Indian banking system has witnessed a significant divergence between loan and deposit growth.
According to Reserve Bank of India data as of September 6, 2024, credit growth was 14.7% year-on-year, while deposit growth lagged behind at 11.6%.
This mismatch has compelled banks like Axis Bank to explore alternative methods, such as bond sales and the issuance of certificates of deposit, to meet growing credit demands.
Between April 1 and September 25, Indian banks issued bonds worth a total of Rs. 76,936 crore, indicating a broader trend in the sector where lenders are increasingly relying on capital markets for funds.
This reliance on bond issuance underscores the challenges banks face in maintaining liquidity while balancing credit and deposit growth.
In conclusion, Axis Bank's decision to issue ₹3,000 crore in AT-1 bonds aligns with the ongoing trend in the banking industry, where credit growth outpaces deposit growth.
With a coupon rate expected between 8.30% and 8.35%, this bond issuance aims to strengthen the bank’s core equity and meet rising credit demands.
While AT-1 bonds offer banks flexibility in financial distress, they come with higher risk, which is compensated by higher returns for investors.
As the banking system navigates through these challenges, capital markets will likely continue playing a pivotal role in ensuring liquidity and supporting growth.
Disclaimer: This article is for informational purposes only and should not be construed as financial or investment advice. Readers are encouraged to consult with a qualified financial advisor before making any investment decisions. The views expressed are based on current market trends and may be subject to change.
