Trending Large-Cap Stock : BOB to issue AT-1 Capital Bonds to raise minimum Rs 500 crore

The government-owned Bank of Baroda (BOB) has received an approval from its finance committee for issuance of AT-1 Capital Bonds compliant with Basel III Capital Regulations of RBI. The approval was made in its meeting on July 12 for minimum amount of Rs 500 crore, with green shoe option and the total issuance not to exceed Rs 3000 crore in single or multiple stages.

Under the Basel III norms, AT-1 bonds come with loss absorbency features, meaning that in case of stress, banks can write off such investments or convert them into common equity if approved by the RBI.

Saddled with bad loans and eroding profits, PSUs are hitting the capital markets to bolster their capital bases to comply with Basel III guidelines, which would come into effect in 2019. The capital requirements of banks have increased under Basel III with minimum Tier-1 capital to be 7%.

For BOB, the quantum of capital support would mitigate the risk of potential stresses on asset quality and would favourably impact its margins. The bank had also been selling its non-core assets to shore up the capital base.

The gross NPAs of BOB have marginally increased to 10.5% with a decline in net NPAs to 4.7%. There was a marginal improvement in NIMs from 2.60% to 2.64% from FY16 to FY17.

The stock was trading at Rs 162.2, down 0.77 per cent from its previous close, on the BSE.