Why in news?

• Banks are rapidly issuing Tier II bonds to strengthen their capital base at a time when companies are raising record amounts through IPOs.
• The banking system is expected to raise about ₹25,000 crore this financial year, with ₹10,000 crore already raised.
• The surge is fuelled by three key factors:
  • High demand for long-term debt instruments,
  • Expectations of a repo rate cut in the upcoming monetary policy, which would make current borrowing costs attractive, and
  • Regulatory requirements pushing institutions to invest in such bonds.
• Together, these conditions have created a favourable window for banks to tap the market aggressively.

What’s in Today’s Article?

• What Tier II Bonds Are and Why Banks Use Them?
• Banks Step Up Tier II Bond Issuances Amid Favorable Market Conditions
• Why Banks Are Turning to Tier II Bonds?

What Tier II Bonds Are and Why Banks Use Them?

• Tier II bonds are long-term debt instruments that banks issue to strengthen their capital base.
• With a minimum tenure of five years, they help banks meet Basel III capital adequacy norms and create an additional buffer to support future credit expansion.
• These bonds allow banks to raise low-cost, long-term capital without diluting equity, making them an efficient funding tool.
• Experts note that Tier II instruments also improve a bank’s capital-to-risk weighted assets ratio (CRAR) by adding extra stability to its balance sheet.
  • CRAR is a key financial metric that measures a bank's capital against its risk-weighted assets to assess its financial strength.
  • It is calculated by dividing a bank's capital (Tier 1 and Tier 2) by its risk-weighted assets and is expressed as a percentage.
  • A higher CRAR indicates a bank is more capable of absorbing potential losses, which promotes financial stability and protects depositors. 

Banks Step Up Tier II Bond Issuances Amid Favorable Market Conditions

• India’s top banks are accelerating Tier II bond issuances.
  • SBI recently raised ₹7,500 crore at a competitive 6.93% via 10-year bonds, while ICICI Bank raised ₹1,000 crore in June.
  • Experts estimate that banks may collectively raise up to ₹15,000 crore by December.
• Many lenders waited earlier due to ample liquidity, lower deposit rates, and expectations of future rate cuts, which would reduce borrowing costs. Last year, banks had raised nearly ₹31,000 crore through Tier II bonds.
• This renewed surge reflects improving market appetite and banks’ need to strengthen their capital base.

Why Banks Are Turning to Tier II Bonds?

• Banks are issuing more Tier II bonds because current market conditions make long-term borrowing cheaper than raising funds through deposits.
• With corporate issuers favouring shorter-term bonds this year, there is strong demand for long-duration, high-quality debt, creating a favourable window for banks.
• Market Factors Driving the Surge
  • Expectation of a repo rate cut in December is encouraging investors to lock in long-term yields now.
  • Scarcity of top-rated long-tenor bonds has boosted appetite for Tier II issuances.
  • SBI’s aggressively priced 6.93% bond has acted as a benchmark, increasing confidence among other banks.
  • Provident and pension funds must meet regulatory investment quotas, pushing demand for long-term corporate bonds.
• Regulatory and Strategic Considerations
  • Some banks also need to refinance older bonds whose call options were exercised.
  • With stable markets and attractive yields, banks see this as the right time to strengthen capital buffers rather than wait for uncertain conditions later in the year.
• Tier II Bonds Are Not the Primary Funding Source
  • Experts note that Indian banks still rely mainly on deposits for growth and capital needs.
  • Most large banks have adequate internal capital generation and sufficient buffers, so future Tier II issuances will depend on how attractive market conditions remain.

About Foraminifera:

• Foraminifera, or forams for short, are single-celled organisms that live in the open ocean, along the coasts, and in estuaries.
• Most have shells for protection and either float in the water column (planktonic) or live on the sea floor (benthic).
• Of the approximately 8,000 species living today, only about 40 species are planktonic, thus the vast majority of foraminifera live on the sea floor.
• They live in a number of different habitats at the sea bottom and most ‘crawl around’ using their pseudopodia.
• They are generally less than 500 microns (½ mm) in size, though some tropical species can grow to 20 cm.
• Because they don’t have a wall around their cell membranes, they are extremely flexible and can change shape.
• What does “foraminifera” mean?
  • The shells have hundreds of tiny holes called foramen, the Latin word for window.
  • The organism pushes extensions of its cytoplasm called pseudopodia (or false feet) through these holes to gather food.
• What Do They Eat?
  • Foraminifera eat detritus on the sea floor and anything smaller than them: diatoms, bacteria, algae, and even small animals such as tiny copepods.
• How Do They Build Their Shells?
  • Forams are unusual among single-celled organisms because they build shells made of calcium carbonate (calcareous) or from tiny grains of sand stuck together (agglutinate).
  • Despite their small size and relatively simple biology, forams build complex shells, consisting at their simplest of one chamber (like a vase or tube) to many chambers that coil in elaborate ways.

About Thames River:

• It is a 346-km river that flows through southern England.
• It is the longest river in England and the second longest in the United Kingdom, right after the River Severn.
• Course:
  • Origin: Its source is at Thames Head, near Kemble in the Cotswold Hills, Gloucestershire County.
  • It flows into the North Sea via the Thames Estuary.
  • The Nore is the sandbank that marks the mouth of the Thames Estuary and the confluence point of the Thames and the North Sea.
• The Thames’ basin covers an area of approximately 16,130 sq.km.
• The Thames is tidal a few miles upstream from London. Past London it becomes an estuary.
• Main Tributaries:
  • Lea, Leach, Churn, Coln, Windrush, Kennet, Evenlode, Ock, and Loddon.
  • The River Kennet is the largest one at 45 miles long.
• The river passes numerous popular cities along its way, such as London, Reading, Hendley-on-Thomas, Windsor, and Oxford, where it is also called the Isis River.
• It provides two-thirds of London’s drinking water.
• It has been a vital transportation route since ancient times, facilitating trade and commerce between London and other parts of England.
• There are 16 bridges that cross the River Thames in Greater London alone, most prominently the Golden Jubilee Bridges and the Millennium Bridges for pedestrians.

About Ammonium Nitrate:

• Ammonium nitrate (NH4NO3) is a crystal-like white solid which is made in large industrial quantities.
• It is a salt of ammonia and nitric acid.
• It is commonly used in agriculture as a high-nitrogen fertilizer, and it has also been used as an oxidizing agent in explosives.
• It has a melting point of 170°C.
• It is highly soluble in water; heating of the water solution decomposes the salt to nitrous oxide (laughing gas).
• It is one of the base ingredients used in the manufacture of commercial explosives. It is the main component of slurry explosives used for mining.
• What Makes Ammonium Nitrate So Explosive?
  • Ammonium nitrate is not an explosive by itself.
  • Other ingredients like fuel,, have to be added to make it an explosive.
  • For such explosive mixtures to explode, initiators like detonators are required.
• Legal Controls on Ammonium Nitrate in India:
  • Under rules introduced in 2012 and updated in 2021, any mixture containing over 45% ammonium nitrate is legally classified as an explosive.
  • A District Magistrate may permit possession of up to 30 metric tonnes, while larger quantities need approval from the Petroleum and Explosives Safety Organisation (PESO).
  • PESO issues licences for the manufacture, storage, transport, and use of large quantities of ammonium nitrate.

About Siliguri Corridor:

• It is a narrow stretch of land in West Bengal that connects India’s mainland to its northeastern states.
• It is around 170 km long and 60 km in width, with its narrowest section being just 20-22 km.
• Overall, it is 12,200 sq.km. in area.
• This corridor shares its border with Nepal, Bhutan, and Bangladesh and is only 130 km away from China’s Chumbi Valley.
• Its geographical fragility and criticality have earned it the nickname “Chicken’s Neck” in strategic and military circles.
• It is the only land link between our Northeast region and the rest of the country.
• Any disruption in this corridor — be it from military conflict, natural disaster, or internal unrest — would sever India’s northeastern states from the rest of the country.

About Caracal:

• It is an elusive medium-sized wild cat species.
• Scientific Name: Caracal caracal.
• It is often referred to as the desert lyn;, however, they are more closely related to the African golden cat and the Serval.
• In India, it is called siya gosh, a Persian name that translates as ‘black Ear’.
• Distribution:
  • It is native to Africa, Central Asia, the Middle East, northwestern India and arid areas of Pakistan.
  • Their numbers in India have dwindled to an estimated 50, primarily in Rajasthan and Gujarat.
• Habitat:
  • It can be found in many environments, such as semi-deserts, savannahs, shrublands, steppes, forests, and woodlands.
  • It prefers dry areas with very little rainfall.
• Features:
  • The caracal has a solid build, long legs, a short face, and tufted ears.
  • They are the largest of Africa’s small wild cats, with males reaching 31 inches in length and females 29 inches in length.
  • A vital feature of the cat is the black tufts on its ears.
  • The cat’s fur is generally a red-tan or sand, although some black caracals have also been seen.
  • Dark lines and white spots can be found near the nose and eyes.
  • The fur is short and thick, and the cat’s back legs are longer than the front.
  • They are remarkable jumpers and can jump up to 3 meters (10 feet) into the air to knock flushed birds down with their paw.
  • They can reach speeds of up to 50 mph (80 kph) when in full flight.
  • Like most species of cat, the caracal is predominantly nocturnal.
  • They live in small herds and their shy and elusive nature makes them difficult to spot in the wild.
• Conservation Status:
  • IUCN Red List: Least concern.

About Portugal:

• Location: It is the westernmost country of mainland Europe, located on the Iberian Peninsula.
• Bordering Countries: It shares land border with Spain (north and east).
• Maritime border: It is bounded by the North Atlantic Ocean to the south and west.
  • It also administers two autonomous regions: the Madeira and Azores archipelagos, located in the Atlantic Ocean.
• Capital city: Lisbon
• Geographical Features of Portugal
  • Climate: Its climate is very much like that of most Mediterranean countries. This means it's hot in the summer and temperate in the winter.
  • Rivers: The Tagus River, flowing west into the Atlantic ocean, divides Portugal into mountainous northern regions and rolling plains in the south.
  • Highest Point: Ponta do Pico (Pico Alto), located in the Azores.
  • Natural Resources: It mainly consists of iron ore, copper, zinc, tin, tungsten, silver, gold, uranium, marble, clay, gypsum.

About Senkaku Islands:

• Location: These are an uninhabited group of islands situated in the East China Sea.
• The islands comprise Uotsuri Island, Kuba Island, Taisho Island Kitakojima Island, Minamikojima Island, Tobise Island, Okinokitaiwa Island, and Okinominamiiwa Island. 
• The total land area of all the islands is roughly 6.3 square kilometers.
• Features of Senkaku Islands:
  • This island consist of conglomerate sandstone (alternate layers of sandstone and conglomerate in some parts), tuff, andesite, andesitic lava.
  • Also it consists of coral outcroppings elevated above sea level during the Holocene era, and other rocky material. 
  • The surrounding area is highly volcanic and features faults associated with this volcanic activity, and this affects land formation.
• Dispute: The Senkaku Islands (called the Diaoyu Islands by China) have long been disputed between China and Japan.
• Administration of Senkaku Islands: Currently, Japan administers and controls the Senkaku Islands as part of the city of Ishigaki in Okinawa Prefecture.

About Sakurajima Volcano:

• Location: It is located on the southern tip of Kyushu island near the city of Kagoshima, Japan.
• It is one of Japan’s most active volcanoes and eruptions of varying levels take place on a regular basis.
• Sakurajima is a stratovolcano formed from layers of lava and ash. It is situated on a convergent plate margin.
• It is an andesitic volcano (meaning it has a high gas content and is very viscous) located at the southern edge of the Aira caldera.
• It is formed by the central cones of the Kitadake (northern peak) and the Minamidake (southern peak).
• Sakura-jima formed an island until 1914, when an explosive eruption produced enough material to join the island to the peninsula on the east.

What is Volcano?

• A volcano is an opening on the surface of a planet or moon that allows material warmer than its surroundings to escape from its interior.
• When this material escapes, it causes an eruption and it can last days, months, or even years. 
• This eruption can be explosive, sending material high into the sky. Or it can be calmer, with gentle flows of material.

About Gulf Cooperation Council:

• It is a regional political and economic alliance established in 1981.
• Member countries: It comprises Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates (UAE).
• Objective: To foster economic, security, cultural, and social cooperation among its members.
• Background: It was formed in response to escalating regional tensions, particularly the Iranian Revolution (1979) and the Iran-Iraq War (1980–1988).
• Organizational Structure of the Gulf Cooperation Council:
  • Supreme council:
    • It is the highest authority of the GCC, composed of the heads of the member states.
    • Its presidency rotates alphabetically according to the names of the countries.
    • It convenes in a regular session annually.
  • Ministerial council:
    • It is composed of foreign ministers or their representatives from member states.
    • It proposes policies and implements decisions of the Supreme Council.
  • Secretariat general: Its responsibilities include preparing studies to enhance cooperation, coordination, and integration in joint Gulf projects and initiatives.
• Headquarters: Riyadh, Saudi Arabia.

What is a One-stop travel system?

• It is part of the GCC’s ambitious push to eliminate redundant travel procedures and foster stronger cooperation between member states. 
• It will allow Gulf citizens to complete all travel procedures including immigration, customs and security checks at a single checkpoint.