SBI plans to mop up Rs 5,000-crore debt capital via tier-II bonds

SBI's capital and operating buffers are likely to be adequate to cover credit costs through FY19-FY20 and support its medium-term growth plans

State Bank of India (SBI), the country’s largest lender, plans to raise up to Rs 5,000 crore in debt to shore up capital adequacy and support business growth.

The bank will issue Basel III compliant tier-II bonds to raise debt capital. 

India Ratings has assigned ‘AAA’ rating with stable outlook to the proposed bond offering. 

SBI remains a better capitalised public sector bank compared to its peers, with a common equity tier-1 (CET1) ratio of 9.62 per cent in FY19 (against 9.68 per cent in FY18). The tier-II capital was 2.07 per cent at end of March 2019 against 2.23 per cent in March 2018. 

Its capital adequacy ratio (CAR) stood at 12.72 per cent in March 2019 (against 12.60 per cent in March 2018). SBI is one of the few public sector banks with the ability to raise equity directly from the markets. In December 2018, its shareholders gave nod to raise up to Rs  20,000 crore in equity capital through various instruments, including public offering, private placement and tapping international capital markets.  

The rating reflects SBI’s systemically important position, the size of its franchise and strong standalone profile. 

The bank would continue to be one of the most important constituents of the Indian banking system, the rating agency said in a statement. The central government owns a majority stake in SBI (57.13 per cent at the end of FY19). During FY14-FY18, the bank received Rs 24,840 crore from the Centre in equity. In FY19, however, it did not receive any equity.  

The rating agency said SBI also has non-core assets that are large profitable enterprises in their own segments and the bank has established a track record of monetising them to raise equity. SBI is planning to list its general insurance and credit card subsidiaries which will provide it resources for enhancing capital adequacy.

SBI’s capital and operating buffers are likely to be adequate to cover credit costs (amounts set aside as provisions for bad loans) through FY19-FY20 and support its medium-term growth plans. 

A meaningful capital requirement for SBI will only show up if it decides to maintain its CET1 ratio above 9 per cent in the medium term, India Ratings added.