South Indian Bank to not exercise call option on Tier-II bonds

South Indian Bank

25/11/2022 12:08

By Bhakti Tambe and Nupur Anand
       MUMBAI, Nov 25 (Reuters) - South Indian Bank  SIBK.NS 
has decided not to exercise a call option, due on Monday, on its
Basel III-compliant tier-II bonds that allows the private lender
to redeem them before maturity, a company spokesperson said on
Friday.
    Interest rates have been rising and if the bank exercises
the call option, it will likely not be able to raise fresh funds
below the 9.5% coupon on this paper, a senior executive at the
bank said, speaking on condition of anonymity as the matter is
not yet public.
    The executive said the decision to not exercise the call
option was not due to concerns about the bank's capital levels –
its capital adequacy ratio is comfortable at over 16% – or due
to concerns over liquidity, which they said was comfortable.
    The private bank had issued the bonds – rated A by CARE and
India Ratings – in November 2017 at a coupon of 9.5%, with the
securities set to mature in May 2028, data from the National
Securities Depository showed.
    While there is no compulsion for banks to exercise their
call options on such bonds, investors assume that they will in
the case of longer-duration bonds, said Ajay Manglunia, managing
director and head of Investment Grade Group at JM Financial.
    However, South Indian Bank's decision not to exercise the
call option could raise the cost of such borrowings for some
banks.
    "Things will change now as far as the lower-rated banks are
concerned, but it may not impact the PSU (public sector
undertakings) or highly-rated banks," Manglunia said.
    South Indian Bank last tapped the bond market in January
2020, when it raised 5 billion rupees ($61.3 million) through
additional tier-I bonds at a coupon of 13.75%.
 
 ($1 = 81.5900 Indian rupees)
 (Reporting by Bhakti Tambe and Nupur Anand in Mumbai; Editing
by Ira Dugal and Savio D'Souza)
 ((Bhakti.RajendraTambe@thomsonreuters.com;))