PSU banks draw up plans to raise funds as credit growth picks up | Popgen Tech

Public sector banks are all set to raise funds by selling additional Tier 1 (AT1) bonds this week as they keep capital ready to participate in the emerging demand for credit.

Union Bank of India (UBI) raised ₹663 crore on Wednesday. Punjab National Bank (PNB) and Bank of Maharashtra (BoM) are expected to raise the money on Thursday.

“Banks had taken board approvals to raise capital this fiscal and are now ramping up as the busy season approaches. This is probably the last tranche of Tier 1 issuance by banks of the public sector for this tax and this keeps them ready for the likely increase in demand for loans in the fourth quarter,” said a banker aware of the transactions.

The improving outlook on banks and better market sentiment on AT1 issues following the Iva Bank fiasco also benefited the banks. On Wednesday, UBI raised ₹ 663 crore at 8.40%, lower than the 8.69% it paid to raise ₹ 1,320 crore earlier this year.

PNB expects to raise ₹1,000 crore, including a green shoe option of ₹500 crore, through these instruments on Thursday and the issue price at 8.20%, lower than the 8.30% that paid in September. Earlier this month, State Bank of India got board approval to raise up to ₹ 10,000 crore through AT1 bonds. The bank may also raise funds through these instruments before the end of the fiscal after having raised ₹ 6,842 crore so far in FY23.

“These fundraisings are routine for banks. As demand for credit has improved, banks must ensure they maintain adequate risk-weighted capital, especially as deposit growth lags in -credit growth,” said a banker involved in the fundraising.

The latest data from the Reserve Bank of India (RBI) shows that banking sector loans grew by 18% for the fortnight ended 2 December, almost double the growth of 9.8% year on year in deposit growth.