SBI to raise Rs 1,500 cr via lower tier-II bonds

State Bank of India (SBI) plans to raise capital up to Rs 1,500 crore through lower tier-II bonds to shore up capital adequacy ratio and support business growth.

These bonds carry AAA/stable rating from Crisil. The tenure of this paper is expected to be 10 years. “The yields on the 10-year government bonds dipped from around 8.6 per cent at the end of September to about 5.7 per cent now. Hence, the bank will save on costs as it will be in a position to place bonds at lesser rates now,” a senior SBI official said.

Other financial institutions and banks, which plan to raise funds through bonds, include IDBI Bank (Rs 2,000 crore) and Export Import Bank of India (2,500 crore).

Last week, SBI had raised Rs 2,500 crore through upper tier-II bonds at a coupon rate of 8.9 per cent. The bank is planning to raise up to Rs 18,000 crore in the remaining period of 2008-09 and 2009-10 through unsecured and rated rupee Innovative Perpetual Debt Instruments/ Upper Tier-II/ Lower Tier-II Subordinated Debt by way of bonds and/or any other capital instruments that RBI may permit from time to time.

These funds would be raised in tranches with a minimum maturity of over 60 months as per RBI guidelines, through structured deals or by private placement/retail participation.

The SBI group has a healthy capital position, marked by a large Tier-I capital base of Rs 65,471 crore as on March 31, 2008, as per Basel II guidelines. The group’s capital base was bolstered by the equity raised by SBI through a rights issue of Rs 16,722 crore in March 2008.

It also raised hybrid Tier I capital of about Rs 900 crore ($ 225 million) during 2007-08. The SBI group had a comfortable Tier I capital adequacy ratio (CAR) of 8.66 per cent as on March 31, 2008. Its standalone net profitability margin (NPM) marginally improved to 1.59 per cent in 2007-08 from 1.55 per cent in 2006-07.