State Bank of India, the country's largest lender, is planning to raise up to Rs 3,300 crore through additional tier-1 (AT1) bonds to shore up capital adequacy.
This is the second time in recent months that the bank is looking to raise funds through this route. In September, it had issued AT1 bonds worth Rs 2,100 crore to YES Bank at a coupon (interest rate) of nine per cent.
CRISIL has assigned 'AA+' for these bonds. For arriving at the ratings, CRISIL has combined the business and financial risk profiles of SBI and its subsidiaries, including associate banks, collectively referred to as the SBI group. This is because the associate banks and subsidiaries are an integral part of SBI's growth strategy.
According to a senior SBI executive, the rates on long-term paper have softened since the start of September. "We want to be ready to take the benefit of falling yields."
The yield on five-year government paper has moved down from 7.02 per cent in early September to 6.71 per cent; for 10-year paper, it has seen a fall from 7.12 per cent level to 6.73 per cent now.
CRISIL's ratings on SBI's debt instruments continue to factor in the SBI group's dominant market position in the Indian banking sector, strong resource profile, adequate capitalisation, and profitability.
The ratings also factor in the continued strong support the bank is expected to receive from its majority owner, the Government of India, both on an ongoing basis and in the event of distress. These rating strengths are partially offset by the SBI group's modest asset quality.
In the middle of September, SBI also floated the country's first overseas AT1 bond offering and raised $300 million. Although it pruned issue size from $500 million to $300 million on its tight pricing stance, SBI fixed the coupon at 5.5 per cent. The price for this issue is expected to become the bench mark for other Indian banks planning similar overseas bond offering.
SBI's capital adequacy ratio (CAR) was 14.01 per cent in June 2016, against 12 per cent a year ago. Common equity tier-1 (CET-1) was 10.71 per cent in June this year, against 9.59 per cent last year.
SBI's CAR improved substantially in the first quarter of FY17 due to gains from revaluation of real estate assets. It boosted CET-1 by Rs 14,383 crore (72 basis points).
- SBI is looking to raise funds to shore up capital adequacy
- This is the second time in recent months that SBI is raising funds via AT1 bonds
- In September, it had issued AT1 bonds worth Rs 2,100 crore to YES Bank at a coupon of 9%
- CRISIL has assigned ‘AA+’ rating for these bonds
- CRISIL’s ratings on SBI’s debt instruments continue to factor in the SBI group’s dominant market position in the Indian banking sector
- In the middle of September, SBI also floated the country’s first foreign AT1 bond offering and raised $300 million