SBI and BoM sell AT1 bonds worth over Rs7,500 to meet rising credit demand

8 Sep 2022 , 08:37 AM

Together, State Bank of India (SBI) and the Bank of Maharashtra (BoM) generated Rs7,582 crore through perpetual bond offerings, preparing for increased credit demand as the recovery gains momentum.

The Pune-based bank raised Rs710 crore while the nation’s largest lender raised Rs6,872 crore at 7.75%. On Wednesday, bids were accepted for bond sales.

According to reports, private banks including Axis Bank, ICICI Bank, and Kotak Mahindra Bank purchased those extra tier 1 (AT-1) SBI bonds since they had the best spread compared to government bonds of a comparable term.

The bonds that are expected to increase the bank’s capital base by up to 30 basis points were raised with assistance from SBI Capital Market.

Perpetual bonds, also known as AT1 bonds, do not have a fixed maturity but instead offer rates that are substantially higher because they are regarded as quasi-equity instruments with a higher degree of investment risk. The money increases the capital base of the banks.

SBI and HDFC Bank, two of India’s leading banks, planned to raise up to Rs10,000 crore this week, according to news reports. The anticipated yield range was 7.70-7.80%.

A five-year call option is included with AT1 papers. Therefore, the variation from the five-year government bonds was approximately 59 basis points annualized. When SBI sold perpetual notes yielding 7.55% in December 2021, the matrix reached a maximum of 159 basis points.

ICRA thinks SBI’s additional capital needs are still manageable for the desired growth.

On Tuesday, HDFC Bank raised Rs3,000 crore through perpetual bonds with an interest rate of 7.84% and a five-year call option.

Last Monday, Bank of Baroda raised Rs2,474 crore through perpetual notes that offered 7.88% in what was referred to as “fine pricing.”

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