The board of Punjab National Bank (PNB) has approved raising up to Rs12,000 crore through issuance of bonds that are Basel III compliant.

The public sector lender said on Tuesday its board approved raising capital via issue of Basel III compliant AT-1 bonds up to Rs 5,500 crore and tier II bonds up to Rs 6,500 crore, in one or more tranches. 

The bonds are eligible for inclusion in the tier-I capital of the bank. Tier-I capital is the core capital of a bank's reserves and is primarily used to fund business activities. Banks are required to hold certain levels of tier 1 and tier 2 capital as reserves so that they can absorb large losses without threatening their stability. 

Banks in India have to implement the Basel III capital requirements by January 2023. Most of the banks are raising Basel compliant bonds to meet the deadline.  The Reserve Bank of India’s (RBI’s) minimum capital to risk weighted assets is 9%, which is one percentage higher than the Basel III recommendation. While the capital adequacy ratio is at 9% under the Basel III guidelines, the RBI has prescribed a conservation buffer of 2.5% to insulate the banks from any sudden shocks. 

PNB had taken an approval from the board for raising Rs 6,400 from the market in 2021. Of this, the bank raised Rs 2,000 crore from tier-2 and Rs 4,000 crore from AT-1 bonds. 

The bank is looking to post a credit growth of 8-10% during 2022-23. Besides buffering the capital reserves, the fundraising will help to fuel credit growth. 

Banks have been requesting the RBI to postpone the deadline for the implementation of Basel III by another six months.