SBI to raise $1 bn in perpetual debt to boost capital ratio, bolster loans

State Bank of India, the nation’s largest lender by assets, is planning to raise as much as Rs 70 billion ($1 billion) through a perpetual debt sale as it seeks to boost capital buffer and bolster loans.

The Mumbai-based lender’s board approved a sale of the Basel III-compliant debt instrument in the year to March 31, the company said in an exchange filing on Monday. The perpetual debt is a lender’s first line of defense against financial shocks after equity, as its value can be written down and interest payments can be deferred.

SBI is opting for an AT1 bond sale to augment capital ratios as the bank plans to defer any equity market fundraising till its share price and valuations improve, Jaikishan Parmar, a research analyst at Mumbai-based Angel Broking Ltd. said by phone. State Bank of India’s valuation as measured by trailing price-to-book ratio is 1.37 per cent, less than half that of the 10-member Bankex Index.

The state-run bank will also need the government’s approval for the sale, the filing showed. Shares of the lender that were little changed in Mumbai trading on Monday have gained more than 22 per cent this year compared to a 16 per cent gain in the Bankex index.