Yields on AT1 bonds increase due to dumping of mutual funds

TNN

Mumbai: The yields of some (), or quasi-capital, issued by nationalized banks and some non-bank papers have more than doubled the yield on government bonds. A key reason for the increase is bond dumping by losing mutual funds at one point to meet redemption pressures.

According to the commercial data of the, Baroda Bank The perpetual bond was last traded with a yield of 10.5%. When the bond was issued, it carried an 8.7% coupon.

The 8.98% perpetual debt of the National Bank of Punjab was traded at 12.65%. Punjab&sindbankistradingat13%,andbankaxisto11.98%.thebondsissuedwithadoublearatingsoldat15%.

oneofthereasonsfortheincreaseinyieldsisthatbanksaretheonlyinstitutionswithliquidity,whicharedeployingalmostrs7lakhcrorewithandintheshort-termdocument,andarenotusingit.

bankshaveachancetoearnabigmargin,ceodineshpangteysaid.headdedthattherbihasallowedbankstoholdthebondstomaturity,nottoworryaboutmark-to-marketprovisions.

accordingtofundmanagers,whilesomepsucompanies'bondsrepresentanopportunitytogenerateareturn,non-governmentbondsareperceivedashighrisk.adropinthecapitaladequacyindexwouldresultinthelossofdividends,andasharpdropcouldeveneliminatecapital.thiswasdemonstratedbytheyesbankepisodewhereseveralat1bondinvestorslostalltheirmoney.

“therealriskthatrunsbetweendebtandat1bondsisnowemerging.previouslyintheirsearchforyield,investorswerewillingtobuyat1bondsat100basispoints(1percentagepoint)onbanks'fdrates,”hesaid.

theexceptionsarebanksthattherbiclassifiesassystemicallyimportantortoolargetofail:sbi,hdfcbank,andicicibank.sbi'sperpetualbondsareyielding9.2%.hdfcbankandicicibankperpetualbondstradedat9.15%.asforanyotherbank,therewillberiskaversionwiththeat1bonds,afundmanagersaid.

accordingtothebankstresstestconductedbytherbiindecember2019,ifthegrossnon-performingassetsindexof52selectedcommercialbanksscheduledmovesto15.6%from9.4%,theindexcapitaladequacyatthesystemlevelwilldecreasefrom14.9%to11.2%andthelevel1crarwilldecreasefrom12.8%to9.2%.thedeteriorationofcapitalatthesystemlevelcouldthereforebeapproximately27.1%.psbswerefoundtobeseverelyaffectedwiththecrarof16ofthe19psbslikelytodropbelow9%intheeventofsuchshock.

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