Canara Bank, a public sector lender, intends to raise up to Rs 3,000 crore in capital in the second half (October 2022-March 2023) through additional Tier I (AT1) and Tier II bonds to sustain accelerated lending growth. The bank, which aims to sustain capital adequacy at 16 per cent or more, has already raised Rs 6,000 crore through these instruments in the first half.
It raised Rs 2,000 crore in capital earlier this month through AT1 notes with a yield rate of 7.99 per cent. This was 25 basis points lower than the rate on AT1 bonds issued in July 2022, which was 8.24 per cent.
Bank officials stated that in the future, the lender’s credit and financial profile will be used to issue bonds at cheaper rates (less than 7.99 per cent).
On September 7, another public sector institution, State Bank of India, sold AT1 bonds for Rs 6,872 crore at a cut-off rate of 7.75 percent.
Canara Bank executives stated that several peer banks, including private lenders, have high capital adequacy ratios (16 per cent and higher), and market feedback indicates that Canara Bank should maintain CAR at similar levels.
Canara Bank’s CAR will rise to over 16 per cent as a result of the funds received through AT1 bonds this month. As of June 30, 2022, its capital adequacy was 14.91 per cent, with Tier-I at 12.13 per cent and Tier-II at 2.78 per cent.
In FY23, the Bengaluru-based public sector lender received permission to issue up to Rs 9,000 crore through AT1 bonds (Rs 5,500 crore) and tier-II bonds (Rs 3,500 crore).
In June 2022, the bank’s loan book increased 14.47 per cent year on year. As of June 2022, it has Rs 7.83 trillion in outstanding advances. The demand for funds (loans) has been robust ahead of the holiday season, and the bank anticipates credit growth to be greater than the rate witnessed in June 2022, according to authorities.
According to Reserve Bank of India data, credit growth in the banking system reached a multi-year high of 16.2 percent year on year for the fortnight ending September 9. The last time loan growth exceeded 16 per cent was in November 2013. Banks have issued nearly Rs 6.5 trillion in loans so far this fiscal year, an increase of 5.5 per cent year on year.