SBI raises Rs 5,000 crore through Additional Tier-I bonds at 7.98%

The issuance was tightly priced, said market participants

India’s largest lender State Bank of India (SBI) raised Rs 5,000 crore on Wednesday through the issuance of Additional Tier-I (AT-I) bonds at a coupon rate of 7.98 per cent to bolster its capital base, marking the lender's first such issuance in the current financial year.

 

The coupon rate is the rate of interest that the bank will pay to investors.

 

The bonds have a call option exercisable after 10 years. AT-1 bonds are debt instruments that are issued by banks to raise money and shore up the capital base.

 

Market participants said that the bonds were fairly priced, considering the large size of the issuance, given its last AT-I issuance in January for Rs 5,000 crore was priced at 8.34 per cent.

 

 

The coupon rate for the bonds was expected between 7.98 per cent and 8 per cent, market sources said. With yields on government bonds easing by over 30 basis points since April, the cost of raising funds by banks has come down.

 

The AT-I bond issue had a base size of Rs 2,000 crore, with a greenshoe option for an additional Rs 3,000 crore. They have been rated ‘AA+’ by Crisil Ratings. 

The issue attracted an overwhelming response from investors with bids in excess of 3.5 times against the base issue size of Rs. 2,000 crores, SBI said in a release. The total number of bids received was 108 indicating participation.The participants were across provident funds, pension funds, insurance companies, mutual funds, NBFCs, banks etc., the bank said.  

 

C S Setty, Chairman said that wider participation and heterogeneity of bids demonstrated the trust investors place in the country’s largest bank.

 

These bonds comply with Basel-III norms, which are designed to improve banks’ ability to absorb shocks. Specifically, Additional Tier-I bonds are perpetual in nature and include provisions that could affect interest payments if certain capital and earnings thresholds, or triggers, are breached. In the worst-case scenario, these bonds may be converted into equity, underscoring the higher risk associated with them.

 

The allotment date for this bond issue is Thursday, with SBI Capital Markets Ltd. serving as the arranger.

 

SBI had a capital adequacy ratio of 13.86 per cent as on June 30, 2024 down by 70 bps from a year ago. The common equity tier-1 (CET1) ratio was at 10.25 per cent.

 

In addition to this, SBI has already raised Rs 15,000 crore through Basel-III compliant Tier-II bonds in the current financial year (FY25) to support its deposit base, which has not kept pace with its credit growth.

 

Separately, state-owned Indian Bank is also gearing up to raise up to Rs 5,000 crore through 10-year infrastructure bonds, with an issuance planned for Thursday. The state-owned bank aims to raise Rs 2,000 crore, with a greenshoe option for an additional Rs 3,000 crore. The bonds have been rated 'AAA' by Care and Crisil.

 

In September, Indian Bank had raised Rs 5,000 crore through 10-year bonds at an interest rate of 7.24 per cent.