HDFC Bank, the country’s largest private-sector lender, is planning to raise up to Rs 50,000 crore (about $6 billion) through bonds including additional tier (AT) I, tier II, and infrastructure bonds in the next 12 months.
Commercial banks’ combined fund raise through bonds (AT I, tier II and infrastructure bonds) was about Rs 1.14 trillion in 2022-23 as against about Rs 73,200 crore in FY22.
Among commercial banks, the country’s largest bank, State Bank of India (SBI), was the largest issuer in FY23. SBI raised about Rs 38,851 crore, followed by HDFC Bank (Rs 23,000 crore), and Axis Bank (Rs 12,000 crore).
HDFC Bank’s board of directors will consider this proposal at its meeting scheduled for April 15.
It will place these instruments — perpetual debt instruments (AT1 bonds, Tier II capital bonds and long-term infrastructure bonds) — through private placement, the bank said.
Its stock closed 0.34 per cent higher at Rs 1,663 per share.
In FY23, HDFC Bank had issued Rs 20,000 crore through Tier II bonds and Rs 3,000 crore through AT1 bonds. In the previous year (FY22), it had garnered Rs 5,000 crore through infrastructure bonds in FY22, according to the JM Financial Services data.
The coupon rate for the bonds increased, reflecting that interest rates hardened and liquidity had tightened in FY23. This was an outcome of the Reserve Bank of India’s monetary policy stance — hiking rates and withdrawing accommodation.
The rated Basel III-compliant Tier I and Tier II instruments are hybrid subordinated debt instruments with equity-like loss-absorption features. Such features may translate into higher losses vis-à-vis conventional debt instruments.
Tier II bonds are cheaper than AT1 bonds in terms of the coupon rate. The coupon is around 100 basis points lower for Tier II bonds than AT1 instruments. Another aspect is demand for such instruments. Those with lower ratings find it difficult to place AT1 bonds, bond dealers say.
The private sector lender is slated to merge mortgage lender Housing Development Finance Corporation (HDFC) with itself this financial year.
HDFC Bank has reported a 17 per cent year-on-year (YoY) increase in advances to Rs 16 trillion at the end of March 2023. Sequentially, advances were up 6.2 per cent over the December quarter. Its capital adequacy ratio stood at 17.66 per cent at the end of December 2022.
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