SBI likely to sell Rs 10,000 crore of AT-1 bonds around February 20

State Bank of India, the country’s largest lender, is in talks to raise up to Rs 10,000 crore worth of capital through the sale of additional tier-1 (AT-1) bonds around February 20, sources said.

The bonds, which are likely to receive a rating of AA+, may go up for bidding on February 20 with issuance scheduled for the next day, sources said.

“We are hearing that there is a base size of Rs 2,000 crore and a greenshoe option worth Rs 8,000 crore. The first call options is likely to be after 10 years. Credit growth continues to remain much stronger than deposits so banks are looking for capital,” a source aware of the developments said.

On December 14, 2022, SBI had said that it planned to raise up to Rs 10,000 crore through AT-1 bonds up to the next financial year to support business growth.

On January 18, the bank raised Rs 9,718 crore through the issuance of 15-year infrastructure debt, with the bonds bearing a coupon of 7.70 per cent.

Prior to the bond sale in January, SBI had issued 10-year infrastructure bonds worth Rs 10,000 crore at a coupon of 7.51 per cent on December 6, 2022.

Over the last few months, banks have embarked on a slew of debt issuances in order to raise capital as deposit growth has continued to lag behind credit growth significantly. This has exerted pressure on banks to mobilise funds in order to fund loan growth.

The latest RBI data showed that as on January 13, 2023 bank credit growth was at 16.5 per cent year-on-year. Deposit growth was at 10.6 per cent over the same period.

Amid the pressure to fund booming loan growth, banks have been aggressively raising deposit rates over the last few months in order to garner funds. Consequently, banks may face pressure to maintain the current strong levels of net interest margins going ahead.

“In December 2022, the rate of increase flipped with deposit rates growing faster than lending rates on fresh loans,” Care Edge ratings said.

“Rate hikes and subsequent faster resets in lending rates vs. deposit rates have led to NIM expansion. In the near term however, widening gap between credit and deposit growth amidst tightening liquidity is leading to aggressive pricing of deposits,” Care Edge said.