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State Bank of India, the country’s largest lender raised funds worth Rs 3,717 crore at a coupon rate of 8.25 per cent through additional tier-1 (AT-1) bonds on Wednesday. The bonds have a ten-year call option.
“The proceeds of bonds will be utilized in augmenting Additional Tier 1 Capital and overall capital base of the Bank and for strengthening capital adequacy in accordance with RBI Guidelines,” SBI said.
“The issue attracted overwhelming response from investors with bids of Rs. 4537 crores and was oversubscribed by about 2.27 times against the base issue of Rs 2000 crores. The total number of bids were 53 indicating wider participation. The investors were across provident and pension funds and insurance companies,” the bank said.
SBI had originally planned a total fund-raising plan of Rs 5,456 crore through AT-1 bonds this week, including a base size of Rs 2,000 crore and a greenshoe option of Rs 3,456 crore.
The coupon rate, or the rate of interest periodically paid out to investors, is the highest for any of SBI’s AT-1 bond issuances so far in the current financial year. With yields on government bonds climbing of late, it has become more expensive for banks to tap debt capital markets for funds.
Yields on government bonds, which are the pricing benchmark for debt issued by corporates, have been on the rise due to hardening US bond yields and tighter liquidity conditions in the banking system.
Apprehensions that the Reserve Bank of India will continue to raise interest rates, given persistently high domestic inflation, have also hurt the demand for bonds, pushing up yields.
So far in 2023, the yield on the 10-year benchmark government bond has climbed 12 basis points, with the paper settling at 7.45 per cent yield on Friday. Yields on 10-year corporate bonds have jumped by 15-16 bps so far this calendar year, while those on three-year and five-year corporate bonds have surged by 27-30 bps.
On February 20, SBI had sold AT-1 bonds worth 4,544 crore at a coupon of 8.20 per cent. This is sharply higher than 7.75 per cent that the lender paid for AT-1 bonds with a five-year call option in September 2022. SBI had also issued 15-year tier-2 bonds with a 10-year call option at a coupon rate of 7.57 per cent in September.
Typically, the coupon rates set for SBI’s bonds tend to be among the lowest in the banking sector.
Banks have tapped the bond market aggressively over the past few months as a wide gap between growth in bank credit and deposits has exerted pressure on lenders to raise funds and finance the incremental demand for loans. Lenders have issued multiple types of debt instruments, including AT-1 bonds, tier-2 bonds and infrastructure bonds, in order to raise capital.
Latest RBI data showed that as on February 10, bank credit growth was at 16.1 per cent year-on-year while deposit growth was at 10.2 per cent.
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