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State-owned Canara Bank has successfully raised INR 4,000 crore by issuing tier-II bonds with a maturity of 10 years. The bonds carry an annual coupon rate of 7.46% and come with a call option after five years. This issuance followed Punjab National Bank's move in the past month, where it had raised INR 3,000 crore via tier-II bonds maturing in 15 years at a coupon rate of 7.43%. The issue from Canara Bank had an initial base size of INR 1,000 crore, along with a greenshoe option of INR 3,000 crore.
State-owned Canara Bank has successfully raised INR 4,000 crore through the issuance of Tier-II bonds with a 10-year maturity period. These bonds carry an annual coupon rate of 7.46% and include a call option, enabling the bank to redeem them after five years. The offering had a base size of INR 1,000 crore, along with a greenshoe option of INR 3,000 crore, which was fully exercised. Advertisement
Tier-II bonds are commonly utilised by banks to strengthen their capital base and comply with the regulatory requirements set out under Basel III norms. As subordinate debt instruments, these bonds rank lower in the repayment hierarchy in the event of liquidation. However, they generally offer higher interest rates to compensate investors for the increased risk involved.
The bonds issued by Canara Bank received a AAA rating from Crisil. In its rating rationale, the agency cited the expectation of continued strong support from the Government of India as a key factor. Crisil also highlighted Canara Bank's healthy market position. Nevertheless, it noted that these positives were partly offset by the bank's moderate-though gradually improving-asset quality and earnings profile.
Canara Bank's move follows a similar fundraising effort by Punjab National Bank, which raised INR 3,000 crore through Tier-II bonds last month. PNB's bonds are set to mature in 15 years and carry a slightly lower coupon rate of 7.43%.
As of the end of December 2024, Canara Bank reported a capital adequacy ratio of 16.44%. Of this, Tier-I capital accounted for 14.55%, while Tier-II capital represented 1.89%.
The successful completion of this bond issuance underscores the robust investor confidence in Canara Bank and reflects the bank's solid position within the Indian financial sector.
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