{"id":73752,"date":"2025-11-17T11:16:15","date_gmt":"2025-11-17T05:46:15","guid":{"rendered":"https:\/\/vajiramandravi.com\/current-affairs\/?p=73752"},"modified":"2025-11-17T11:16:15","modified_gmt":"2025-11-17T05:46:15","slug":"why-banks-are-raising-tier-ii-bonds-surge-in-long-term-capital-issuance","status":"publish","type":"post","link":"https:\/\/vajiramandravi.com\/current-affairs\/why-banks-are-raising-tier-ii-bonds-surge-in-long-term-capital-issuance\/","title":{"rendered":"Why Banks Are Raising Tier II Bonds: Surge in Long-Term Capital Issuance"},"content":{"rendered":"<h2><b>Tier II Bonds Latest News<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Banks are rapidly issuing Tier II bonds to strengthen their capital base at a time when companies are raising record amounts through IPOs.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The banking system is expected to raise about <\/span><b>\u20b925,000 crore<\/b><span style=\"font-weight: 400;\"> this financial year, with <\/span><b>\u20b910,000 crore already raised<\/b><span style=\"font-weight: 400;\">.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">The surge is fuelled by three key factors:<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">High demand for long-term debt instruments,<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Expectations of a repo rate cut in the upcoming monetary policy, which would make current borrowing costs attractive, and<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Regulatory requirements pushing institutions to invest in such bonds.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Together, these conditions have created a favourable window for banks to tap the market aggressively.<\/span><\/li>\n<\/ul>\n<h2><b>What Tier II Bonds Are and Why Banks Use Them<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Tier II bonds are <\/span><b>long-term debt instruments<\/b><span style=\"font-weight: 400;\"> that banks issue to <\/span><b>strengthen their capital base<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">With a minimum tenure of <\/span><b>five years<\/b><span style=\"font-weight: 400;\">, they help banks meet <\/span><b>Basel III capital adequacy norms<\/b><span style=\"font-weight: 400;\"> and create an additional buffer to support future credit expansion.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">These bonds allow banks to raise <\/span><b>low-cost, long-term capital without diluting equity<\/b><span style=\"font-weight: 400;\">, making them an efficient funding tool.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Experts note that Tier II instruments also improve a bank\u2019s <\/span><b>capital-to-risk weighted assets ratio (CRAR)<\/b><span style=\"font-weight: 400;\"> by adding extra stability to its balance sheet.<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">CRAR is\u00a0a key financial metric that measures a bank&#8217;s capital against its risk-weighted assets to assess its financial strength.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">It is calculated by dividing a bank&#8217;s capital (Tier 1 and Tier 2) by its risk-weighted assets and is expressed as a percentage.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">A higher CRAR indicates a bank is more capable of absorbing potential losses, which promotes financial stability and protects depositors.\u00a0<\/span><\/li>\n<\/ul>\n<\/li>\n<\/ul>\n<h2><b>Banks Step Up Tier II Bond Issuances Amid Favorable Market Conditions<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">India\u2019s top banks are accelerating Tier II bond issuances.\u00a0<\/span>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">SBI recently raised <\/span><b>\u20b97,500 crore<\/b><span style=\"font-weight: 400;\"> at a competitive <\/span><b>6.93%<\/b><span style=\"font-weight: 400;\"> via 10-year bonds, while ICICI Bank raised <\/span><b>\u20b91,000 crore<\/b><span style=\"font-weight: 400;\"> in June.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"2\"><span style=\"font-weight: 400;\">Experts estimate that banks may collectively raise <\/span><b>up to \u20b915,000 crore<\/b><span style=\"font-weight: 400;\"> by December.<\/span><\/li>\n<\/ul>\n<\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Many lenders waited earlier due to <\/span><b>ample liquidity, lower deposit rates<\/b><span style=\"font-weight: 400;\">, and expectations of <\/span><b>future rate cuts<\/b><span style=\"font-weight: 400;\">, which would reduce borrowing costs. Last year, banks had raised nearly <\/span><b>\u20b931,000 crore<\/b><span style=\"font-weight: 400;\"> through Tier II bonds.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">This renewed surge reflects improving market appetite and banks\u2019 need to strengthen their capital base.<\/span><\/li>\n<\/ul>\n<h2><b>Why Banks Are Turning to Tier II Bonds<\/b><\/h2>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Banks are issuing more Tier II bonds because <\/span><b>current market conditions make long-term borrowing cheaper than raising funds through deposits<\/b><span style=\"font-weight: 400;\">.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">With corporate issuers favouring shorter-term bonds this year, there is strong demand for <\/span><b>long-duration, high-quality debt<\/b><span style=\"font-weight: 400;\">, creating a favourable window for banks.<\/span><\/li>\n<\/ul>\n<h3><b>Market Factors Driving the Surge<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Expectation of a repo rate cut<\/b><span style=\"font-weight: 400;\"> in December is encouraging investors to lock in long-term yields now.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Scarcity of top-rated long-tenor bonds<\/b><span style=\"font-weight: 400;\"> has boosted appetite for Tier II issuances.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>SBI\u2019s aggressively priced 6.93% bond<\/b><span style=\"font-weight: 400;\"> has acted as a benchmark, increasing confidence among other banks.<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><b>Provident and pension funds<\/b><span style=\"font-weight: 400;\"> must meet regulatory investment quotas, pushing demand for long-term corporate bonds.<\/span><\/li>\n<\/ul>\n<h3><b>Regulatory and Strategic Considerations<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Some banks also need to refinance older bonds whose call options were exercised.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">With stable markets and attractive yields, banks see this as the right time to strengthen capital buffers rather than wait for uncertain conditions later in the year.<\/span><\/li>\n<\/ul>\n<h3><b>Tier II Bonds Are Not the Primary Funding Source<\/b><\/h3>\n<ul>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Experts note that Indian banks still rely mainly on <\/span><b>deposits<\/b><span style=\"font-weight: 400;\"> for growth and capital needs.\u00a0<\/span><\/li>\n<li style=\"font-weight: 400;\" aria-level=\"1\"><span style=\"font-weight: 400;\">Most large banks have <\/span><b>adequate internal capital generation<\/b><span style=\"font-weight: 400;\"> and sufficient buffers, so future Tier II issuances will depend on how attractive market conditions remain.<\/span><\/li>\n<\/ul>\n<p><b>Source:<\/b> <strong><a href=\"https:\/\/indianexpress.com\/article\/explained\/explained-economics\/banks-15000-cr-tier-ii-bonds-10362972\/\" target=\"_blank\" rel=\"nofollow noopener\">IE<\/a> | <a href=\"https:\/\/bfsi.economictimes.indiatimes.com\/articles\/indian-banks-set-to-raise-rs-25000-crore-through-tier-ii-bonds-by-december-amid-investor-demand\/125314320\" target=\"_blank\" rel=\"nofollow noopener\">BFSI<\/a><\/strong><\/p>\n","protected":false},"excerpt":{"rendered":"<p>Banks are rapidly issuing Tier II bonds to strengthen capital, driven by demand for long-duration debt, expected rate cuts, and regulatory investment needs.<\/p>\n","protected":false},"author":18,"featured_media":73766,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[18],"tags":[60,3737,22,59],"class_list":{"0":"post-73752","1":"post","2":"type-post","3":"status-publish","4":"format-standard","5":"has-post-thumbnail","7":"category-upsc-mains-current-affairs","8":"tag-mains-articles","9":"tag-tier-ii-bonds","10":"tag-upsc-current-affairs","11":"tag-upsc-mains-current-affairs","12":"no-featured-image-padding"},"acf":[],"_links":{"self":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/73752","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/users\/18"}],"replies":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/comments?post=73752"}],"version-history":[{"count":0,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/posts\/73752\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media\/73766"}],"wp:attachment":[{"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/media?parent=73752"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/categories?post=73752"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/vajiramandravi.com\/current-affairs\/wp-json\/wp\/v2\/tags?post=73752"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}