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SBI sells largest AT-1 tranche at lowest rate for any bank so far this year

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India’s largest lender State Bank of India on Wednesday issued additional tier-1 (AT1) bonds worth a total of Rs 6,872 crore at a cut-off of 7.75 per cent, the lowest rate set for such debt issuances by any bank so far in the current .

The bank had notified an amount of Rs 7,000 crore to be raised through a single tranche of AT1 bonds in order to augment capital.

With several investors having expressed keen interest in the banking giant’s debt offering, the cut-off was well below 7.84 per cent set for AT1 bonds issued by the country’s largest private lender on Tuesday.

“There was already assured demand for a large portion of the notified amount of SBI’s bonds; there are several entities such as tech companies and others which only buy bonds by them,” a senior treasury official said.

“There was a bit of a buzz that the cut-off could have been even lower — around 7.68 per cent or so. Some of the bids were at that level, but by and large, given the prevailing spreads with G-secs (government securities) it is a satisfactory cut-off,” the official said.

Yield on the most liquid five-year G-sec settled at 7.04 per cent on Wednesday, while that on the 10-year bond closed at 7.18 per cent. SBI’s AT1 bonds have a call option after five years.

Meanwhile, cut-offs for 10-year state were set at 7.53 per cent on Tuesday. Yields on are the pricing benchmarks for corporate debt.

As on June 30, SBI’s capital adequacy ratio was at 13.43 per cent. Reserve Bank of India regulations stipulate that must maintain a minimum capital to risk weighted assets ratio of 9 per cent.

Separately, Bank of Maharashtra on Wednesday issued AT1 bonds worth Rs 710 crore at a cut-off rate of 8.74 per cent.

Taking into account the issuance of AT1 bonds on Wednesday, the total capital raised by through this route so far in the current stands at Rs 18,376 crore. Stripping out HDFC Bank’s Rs 3,000 crore issuance on Tuesday, the rest has been raised by state-owned .

Banks had issued AT1 bonds worth Rs 42,800 crore in the previous .

“Based on the current announcements by the banks, public sector banks (PSBs) have announced their intentions to raise Rs 201 billion of ATI bonds in FY23, while private sector issuances are likely to remain limited,” rating agency ICRA wrote in a recent note.

“Unlike FY22, when the issuances were driven by rollover requirements, the issuances by public banks in FY23 are driven largely by their growth requirements,” ICRA’s note said.

The recent slew of AT1 issuances comes at a time when bank credit has been expanding at a much quicker pace than deposits. The latest RBI data showed that as on August 12, credit growth was at 15.3 per cent year-on-year as against deposit growth of 8.8 per cent over the same period.

The other PSBs have raised funds through AT1 bonds so far in the current financial year are Canara Bank, Union Bank, Punjab National Bank, and Bank of Baroda.


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