SBI likely to issue Rs 7,000-cr additional tier-I bonds by August-end

State Bank of India (SBI), the country’s largest lender, is likely to issue additional tier-I (AT-1) bonds worth Rs 7,000 crore in a single tranche around the end of August, sources told Business Standard.
 

Last month, SBI’s board had provided approval for raising up to Rs 11,000 crore via additional tier-I and tier-II bonds to meet regulatory requirements and support business growth.
 

“Their (SBI’s) plan is to issue it around August 24. Generally, they do it in two tranches, but they might want to do it in one tranche because their whole year requirement is only Rs 7,000 crore,” a treasury official aware of the developments said.
 

“They generally see a good amount of demand from corporates and other entities. There are some investors who always want SBI’s bonds,” the official said. 
 

Several public sector banks, including Punjab National Bank, Canara Bank and Union Bank of India, have recently raised funds through the issuance of AT-1 bonds, taking advantage of a decline in bond yields over the last couple of months. 
 

Sovereign bond yields, which are the benchmarks for pricing firms’ bond issuances, have declined sharply since the second fortnight of June as growing signs of a global growth slowdown have led to speculation of the central bank’s tempering rate hike plans.
 

Yield on the 10-year benchmark government paper, which had jumped to a three-year high of 7.62 per cent on June 16, settled at 7.24 per cent on Wednesday.
 

Treasury officials expect SBI’s AT-1 bonds to be issued at a finer rate than those sold by other state-owned banks recently. Last month, Canara Bank sold Rs 2,000 crore worth of AT-I bonds at a lower-than-expected rate of 8.24 per cent.
 

SBI’s bonds are likely to have a five-year call option, implying that the pricing benchmark would be the five-year government security. The five-year government bond settled at 6.99 per cent yield on Wednesday.
 

“There are a lot of corporates who can only buy SBI. You might have tech companies, you might have some small corporates who only buy SBI and for them if there is only one issue of SBI, they will just go for a successful bid,” the treasury official said.

“They don’t buy in the secondary market, they only buy in the primary market so that one-time demand will come. It can be priced very aggressively. Generally, they do a lot of groundwork through SBI Caps. They only launch the issuance when they are sure of demand,” he said.
 

SBI’s capital adequacy ratio was at 13.83 per cent with Tier-I of 11.42 per cent and Tier-II of 2.41 per cent at end of March 2022.
 

In December 2021, the bank had raised about Rs 3,974 crore through AT-1 bonds at a rate of 7.55 per cent. Since then, the RBI has raised the repo rate by 90 basis points to 4.90 per cent.