Financial institutions in India use innovative perpetual debt instruments to raise capital. Banks issue these unsecured debt instruments as bonds or debentures subordinate to the depository claims. For IPDIs to qualify for "Tier I" capital inclusion, it must meet capital adequacy purposes as stated by the Reserve Bank of India.
Bank-issued innovative perpetual debt instruments involve currency in Indian rupees along with foreign monies. IPDIs must comply with terms and applicable guidelines when issued in foreign currency. The debt instruments cannot be issued in foreign currency with the eligible amount of more than 49 percent.
A bank's board of directors determines the amount to be raised for innovative perpetual debt instruments. These IPDIs entering as Tier I capital need to be free of any restrictive clauses, fully paid and unsecured as stated by the Reserve Bank of India. Since these debt instruments are perpetual, the IPDIs do not have a progressive discount.
Limitations and Interest Rates
IPDIs issued as Tier I cannot exceed 15 percent total capital. This limitation is based on the Tier I capital amount as of March 31 of the previous year along with deductions of intangible assets before investment deductions. IPDIs have perpetual maturity periods and payable interest at a fixed or floating rate. Rupee interest standard yield rate determined by the market is referenced for the rate of interest.
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