menu

Knowledge

Blogs

Dec 27th 2021

RBL Bank issues will increase risk of perpetual bonds of other private sector banks

linkedIn Logo
 
twitter logo

RBL bank looks to be under strict supervision by RBI giving rise to fears of another Yes Bank situation where the bank was liquidated, and investors lost money in perpetual bonds of Yes Bank.

author dp
Ketan Verma

RBL Bank issues will increase risk of perpetual bonds of other private sector banks

RBL bank looks to be under strict supervision by RBI giving rise to fears of another Yes Bank situation where the bank was liquidated, and investors lost money in perpetual bonds of Yes Bank.

ISIN No

Issuer Name

Coupon (%)

Yield

Turnover (Rs lakhs)

Yield to Call

Tenor to Call Option

Spreads (bps)

INE095A08082

INDUSIND BANK LIMITED

10.5000

8.85

10

28-Mar-24

3.00

347.98

INE608A08025

PUNJAB AND SIND BANK

10.9000

9.9

20

07-May-22

1.00

571.00

INE683A08051

THE SOUTH INDIAN BANK LTD.

13.7500

14.26

66

24-Jan-25

4.00

835.53

INE090A08UA6

ICICI BANK LIMITED

8.5500

5.94

100

04-Oct-22

1.00

169.00

INE090A08UC2

ICICI BANK LIMITED

9.9000

6.73

100

28-Dec-23

2.00

137.00

 

RBI appoints additional director to RBL Bank.

In a surprising turn of events, the Reserve Bank of India (RBI) appointed its Chief General Manager, Yogesh K Dayal, as an additional director on the board of RBL Bank. Simultaneously, RBL Bank said its Managing Director and Chief Executive Officer Vishwavir Ahuja will proceed on leave with immediate effect, while Executive Director Rajeev Ahuja will take over as interim MD and CEO.

The bank & central bank have not released any statement in order the clarify the sudden development. However, the regulator typically puts its people on the board when it feels that there is a need for closer scrutiny either in terms of financial performance or governance issues or both.

Earlier this year, RBL had sought approval from the Reserve Bank of India (RBI) to appoint Vishwavir Ahuja for another three-year term as the bank�s MD & CEO The regulator, however, had allowed RBL to extend his term by one year starting June 30, 2021.

In the past, RBI has used its power to appoint its representative on the board of private banks in a few instances, such as J&K Bank (Jul-19), Yes Bank (Mar-20), Dhanlaxmi Bank erstwhile Lakshmi Vilas Bank (Sep-20), and Ujjivan SFB (Nov-21). The common thread in all these cases was that there were governance concerns or troubled finances. The market believes that the uncertainty arising from this announcement at RBL Bank may have knock-on impact on other smaller private banks

The financials of the bank remain robust with a healthy capital adequacy of 16.3%, high levels of liquidity as reflected through liquidity coverage ratio of 155%, stable net NPA of 2.14, credit deposit ratio of 74.1% and leverage ratio of 10%, for the quarter ended September 30, 2021.

Impact on Perpetual Bonds

Perpetual bonds that are trading at higher levels could be impacted as market risk perception increase on the RBL Bank issue.

ISIN No

Issuer Name

Coupon (%)

Yield

Turnover (Rs lakhs)

Yield to Call

Tenor to Call Option

Spreads (bps)

INE095A08082

INDUSIND BANK LIMITED

10.5000

8.85

10

28-Mar-24

3.00

347.98

INE608A08025

PUNJAB AND SIND BANK

10.9000

9.9

20

07-May-22

1.00

571.00

INE683A08051

THE SOUTH INDIAN BANK LTD.

13.7500

14.26

66

24-Jan-25

4.00

835.53

INE090A08UA6

ICICI BANK LIMITED

8.5500

5.94

100

04-Oct-22

1.00

169.00

INE090A08UC2

ICICI BANK LIMITED

9.9000

6.73

100

28-Dec-23

2.00

137.00

 

Perpetual bonds carry many risks including interest rate risk, credit risk, liquidity risk and pricing risk, non-institutional investors believe that by holding the bonds until they are called will give them the necessary yield that they are looking for and also negate all risks, especially credit risk.

Basel III non-common equity elements which is included in Tier 1 capital can absorb losses provided the bank remains a going concern. AT 1 bond principal loss absorption can be done through either conversion into common shares or (write-down mechanism, which allocates losses to the instrument at an objective pre-specified trigger point.

Basel III non-common equity elements which is included in Tier 1 capital can absorb losses provided the bank remains a going concern. AT 1 bonds principal loss absorption can be done through either conversion into common shares or ( write-down mechanism, which allocates losses to the instrument at an objective pre-specified trigger point.

 

 

 

Disclaimer:
Information herein is believed to be reliable but Arjun Parthasarathy Editor: INRBONDS.com does not warrant its completeness or accuracy. Opinions and estimates are subject to change without notice. This information is not intended as an offer or solicitation for the purchase or sale of any financial instrument. The financial markets are inherently risky and it is assumed that those who trade these markets are fully aware of the risk of real loss involved. Unauthorized copying, distribution or sale of this publication is strictly prohibited. The author(s) of the content published in the site INRBONDS.com may or may not have investments in the assets discussed in the pages/posts.

Copyright © INRBONDS.com by Arjun Parthasarathy 2019-2022

report image

Ultra Low FD Interest Rates Force Investors to Make Loss Making Bond Investments

Oct 12th 2020

Arjun Parthasarathy

report image

Muthoot/Manappuram 2 to 3-year Bonds + Gold ETF = Gold MLD with Transparent Pricing and Market Liquidity

Oct 15th 2020

C S S Nikhil Bhargav