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State-owned Union Bank of India has raised 850 crore by issuing Basel-III-compliant bonds on a private placement basis.

The bank has allotted Basel-III-compliant tier-II bonds, which are in the nature of debentures eligible for inclusion in tier-II capital, aggregating to 850 crore, Union Bank of India (UBI) said in a regulatory filing on Thursday.

The tenor of the bond is 10 years and it has a coupon rate of 7.19 per cent per annum.

The lender said there is a call option on the bonds which can be applicable on or after the fifth year from the date of allotment (June 24, 2021).

Tier-II capital of a bank includes undisclosed reserves, revaluation reserves, and subordinate debt.

A call option bond provides the issuer of the bond to repay the debt before the maturity, especially when the interest rates are falling as servicing a debt at a higher rate is not prudent.

To comply with Basel-III capital regulations, banks globally need to improve and strengthen their capital planning processes in the aftermath of the Lehman Brothers failure.

These norms are being implemented to mitigate concerns on potential stresses on asset quality and consequential impact on performance and profitability of banks.

The Indian banking system has been implementing Basel-III standards in phases since April 1, 2013.

UBI's shares on Thursday closed 2.29 per cent lower at 38.35 apiece on the BSE.

This story has been published from a wire agency feed without modifications to the text.

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