Home >Mutual Funds >News >India gets low demand for risky bank debt as caps cut appeal

India got low demand for a riskier type of bank bond, its first test since the regulator introduced a cap on mutual funds’ investments in such securities.

One of the nation’s largest regional lenders, Bank of Maharashtra, got just a single bid amounting to its base issue size of 100 crore ($13.8 million) for local-currency Tier 2 notes, leaving the issuance’s greenshoe option of as much as 494 crore unutilized, according to a person familiar with the matter. The sale was closely watched to gauge demand from mutual funds, the biggest buyer of such debt.

The Securities & Exchange Board of India this month announced rules which restrict mutual funds’ holdings of perpetual Additional Tier 1 and Tier 2 notes to 5% of net assets for a single issuer, effective April 1. The regulator also asked asset managers to start valuing AT1 notes as 100-year securities, sparking a selloff in that debt. That valuation measure may be eased, people familiar with the matter said last week.

Riskier debt
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Riskier debt

Concern has been rising about riskier bank bonds, which can be written down in a crisis. Lenders in India are saddled with one of the world’s worst bad debt piles and need to boost capital buffers in anticipation of more soured loans as the coronavirus batters businesses.

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