State Bank of India raises Rs 3,974 crore capital through AT1 bonds

State Bank of India (SBI) has raised about Rs 3,974-crore capital through additional tier 1 bonds (AT1 bonds). The coupon for the AT1 bonds was fixed at 7.55 per cent, cheaper by 17-basis points over the last issuance in September 2021.

Bond dealers said the response to SBI’s offering was good. While the indicative size was Rs 4,000 crore, the issue received bids over Rs 6,000 crore. It opted for Rs 3,974 crore with a coupon of 7.55 per cent. 

In September 2021, the bank had issued AT1 bonds for Rs 4,000 crore at 7.72 per cent. There have been rating upgrades for AT1 bonds in the third quarter, helping it to raise funds at cheaper rates (lower coupon rate) in fresh issues of bonds, dealers said.

There is increasing interest in the instruments (AT1 bonds) of public sector banks as the bad loan situation has become better, recoveries have improved and prospects of further stress look less. 

In November 2021, Canara Bank raised Rs 1,500 crore through ATI bonds. The bank received a total bid amount of Rs 4,699 crore, out of which issuance of Rs 1,500 crore was accepted at a coupon rate of 8.05 per cent.

Union Bank is likely to hit the market next week with AT1 bond issue of Rs 1,500 crore.  

AT1 bonds are perpetual debt instruments that banks are allowed to raise under the Basel III capital framework. They form a part of tier I capital for banks. SBI’s capital adequacy ratio (CAR) stood at 13.35 per cent with tier 1 of 11.02 per cent at the end of September 2021.

CRISIL Ratings has assigned ‘AA+/Stable’ rating to SBI’s Rs 4,000 crore tier-I bonds (under Basel III). 

The ratings continue to centrally factor in the dominant market position of the SBI group in the Indian banking industry, its strong resource profile and adequate capitalisation. These bonds would replace SBI’s existing AT1 instruments, which are maturing over the period. 

The ratings also factor in the continued strong support that the bank is likely to receive from its majority owner, Government of India, both on an ongoing basis and in the event of distress. These strengths are partially offset by the modest asset quality of the group.

Under the Reserve Bank of India’s regulatory norms for AT 1 bonds, the issuing bank has full discretion over coupon payments at all times on these instruments. Therefore, a bank may not pay a coupon if it does not have sufficient distributable reserves to service the coupon on AT 1 bonds.