SBI to Sell Up to Rs 10,000 Crore of AT-1 Bonds in Bid to Meet Capital Requirements

12 Jul 2023 , 02:47 PM

This week, the State Bank of India (SBI), the largest mass lender in the nation, plans to issue additional tier-1 (AT-1) bonds in order to generate up to Rs 10,000 crore in funding. The base amount of the bond offer is anticipated to be Rs 3,000 crore, with a green shoe option of Rs 7,000 crore.

According to Treasury officials, the coupon, or the interest rate paid to investors, may be approximately 8%. The coupon rates for SBI’s AT-1 bonds are typically the lowest among other lenders due to its position as the biggest bank in the nation.

The bond sale takes place when the economy experiences rapid credit growth. Based on available data, as of June 16, the growth of bank credit was 15.4% over the previous year, while deposit growth was 12.1%. The large disparity between the increase of credit and deposits has put pressure on banks to raise money.

The bank had last used the debt capital markets to raise money by issuing AT-1 bonds in March with an 8.25% coupon. However, since the Reserve Bank of India (RBI) unexpectedly suspended rate increases at its April review, rates on government bonds, which serve as the benchmarks for pricing corporate bonds, have fallen dramatically. The yield on the benchmark 10-year government bond has decreased by over 20 basis points since April 6.

Given the robust economic credit expansion and the comparatively low coupon rate, investors are anticipated to respond favorably to the bond offering. Additionally, the sale is anticipated to assist SBI in satisfying its capital needs.

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