Bank of Baroda to raise Rs 2500 crore via AT-1 bonds

These are issued by banks to comply with Basel III norms. These norms took effect after the 2008 global financial crisis, which led to the collapse of a few banks and pushed many others to the brink.

To comply with the norms and reduce the risk of insolvency, banks need to keep a minimum capital and one of the ways to do that is by issuing AT-1 bonds. And the high yield that banks offer is the reason for their popularity. Mutual funds tap into these bonds to offer that little extra to their investors.

AT-1 bonds are issued with call options — this means that each bond will pay interest up to its call date — which is the date on which the issuer, in this case, the bank can call back the bond and pay back the lender.

The bank reported a 79.3 percent year-on-year growth in its net profit at Rs 2,168 crore in the quarter ended June on the back of a dip in provisions for bad loans.

Shares of Bank of Baroda ended at Rs 118.25, down by Rs 2.00, or 1.66 percent on the BSE.