The central bank has halved the maturity of these bonds to 5 years from 10 years earlier.
Raising capital has just got easier for banks with RBI tweaking the bonds issued under the Basel III guidelines. As part of these changes, the central bank has halved the maturity of these bonds to 5 years from 10 years earlier.
It has also allowed banks to either convert these bonds into shares or repay a part of the principal amount if the bank makes losses and thereby its core equity capital falls below the mandated 6.125 percent. The remaining principal amount can be repaid in future once banks have enough capital.
More importantly, bankers say these bonds can now be issued to retail investors as well.
NS Venkatesh, Executive Director, IDBI Bank , said: "The revised guidelines put out by RBI is most welcome. Because what they have done is fine tune the regulations. So that it is more or less now converging to an international standards prescribed for the bond issue and present in the international market. I think definitely the issuer should be able to save at least around 50 to 75 bps on the cost of issuance."
Credit rating agencies, on the other hand, say the changes in Basel norms will reduce the risk in these bonds and improve its rating, although these bonds will continue to be a notch down from corporate credit rating. But rating agencies say the demand for these bonds will increase
Pawan Agrawal, Senior Director, CRISIL Ratings, said: "More banks are likely to issue these bonds and our expectation is that there is an appetite or requirement for 1.3 lakh crore over implementation period of Basel guidelines till March 2019. That requirement will continue to be offset if these instruments are not raised. It will have to met by equity, which is clearly a costlier option."
Bank of India had raised the first set of Basel III bonds in July this year. Now other banks like IDBI Bank are looking to raise similar bonds. Analysts say this will bring down the quantum of capital that banks have to raise through equity as debt will now provide a fill up to meet banks' capital requirements.
IDBI Bank stock price
On September 04, 2014, IDBI Bank closed at Rs 75.20, down Rs 1.85, or 2.4 percent. The 52-week high of the share was Rs 116.50 and the 52-week low was Rs 52.30.
The company's trailing 12-month (TTM) EPS was at Rs 5.73 per share as per the quarter ended June 2014. The stock's price-to-earnings (P/E) ratio was 13.12. The latest book value of the company is Rs 147.38 per share. At current value, the price-to-book value of the company is 0.51.
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