Singapore markets open in 2 hours 37 minutes
  • Straits Times Index

    3,394.21
    +17.02 (+0.50%)
     
  • S&P 500

    4,070.56
    +10.13 (+0.25%)
     
  • Dow

    33,978.08
    +28.68 (+0.08%)
     
  • Nasdaq

    11,621.71
    +109.31 (+0.95%)
     
  • BTC-USD

    23,798.75
    +776.31 (+3.37%)
     
  • CMC Crypto 200

    526.66
    +9.65 (+1.87%)
     
  • FTSE 100

    7,765.15
    +4.04 (+0.05%)
     
  • Gold

    1,943.90
    -1.70 (-0.09%)
     
  • Crude Oil

    79.38
    -0.30 (-0.38%)
     
  • 10-Yr Bond

    3.5180
    +0.0250 (+0.72%)
     
  • Nikkei

    27,382.56
    +19.76 (+0.07%)
     
  • Hang Seng

    22,688.90
    +122.10 (+0.54%)
     
  • FTSE Bursa Malaysia

    1,497.55
    -0.84 (-0.06%)
     
  • Jakarta Composite Index

    6,898.98
    +34.16 (+0.50%)
     
  • PSE Index

    7,052.16
    +9.46 (+0.13%)
     

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

By Bhakti Tambe and Nupur Anand

MUMBAI (Reuters) - South Indian Bank 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)