SBI seeks to raise Rs 10,000 cr in tier-I bonds, wary about spike in yields

The country’s largest lender, State Bank of India (SBI), is looking to raise up to Rs 10,000 crore capital via additional tier I bonds (AT1) in the coming week. However, the recent spike in yields in the last two weeks has made it weigh on the costs of locking in at higher yields.

Debt market sources said the AT1 bonds raise, tentatively scheduled for July 13, is for twin purposes–supporting business growth and replacing instruments (bonds) that are maturing. The bank would decide on actual bond issuance based on yield level in the market, which hardened in the last two weeks.

The yield on the benchmark 10-year Government of India bonds closed at 7.15-16 per cent level at end of week (July 07) from 7.07 per cent fortnight ago (June 23), according to data from Clearing Corporation of India (CCIL) and CARE Ratings.  

SBI executives said out of the total Rs 50,000 crore bond issuance plan for FY24, Rs 20,000 crore will be AT1 bond offering including this week’s proposed offering. It also has plans to issue tier-II bonds worth Rs 10,000 crore and balance would be through infrastructure bonds in 2023-24. The board has given approval for this year’s bond raising plan. Rating agency Crisil has assigned “AA+” rating to Tier I Bonds (Under Basel III regulations)

According to JM Financial Services group data, banks in total raised Rs 6,635 crore through tier-II and infrastructure bonds in the first quarter. There was no issuance of additional tier-I bonds in April-June 2023. In FY23, banks on an aggregate basis raised Rs 1.13 trillion via bonds. Out of which AT 1 issuance was for Rs 34,394 crore, Tier II bonds Rs 59,686 crore and infrastructure bonds – Rs 19,900 crore. SBI had issued AT1 bonds worth Rs 15,133 crore in FY23.

According to Crisil, SBI (standalone) had  adequate capitalisation as indicated by tier-I of 12.1 per cent and overall capital adequacy ratios 14.7 per cent as on March 31, 2023. However, given its large scale of operations, the SBI group will need to maintain adequate buffers to support growth and meet capital requirements as per Basel-III guidelines.

It has the flexibility to raise additional capital through stake sale in its subsidiaries. Also, the Government of India (GoI) held 56.92 per cent stake in the bank as on March 31, 2023, providing flexibility to the bank to raise capital by diluting GoI’s stake.