State Bank of India likely to sell Rs 5,456-crore AT1 bonds next week

UCO Bank may also issue such bonds

State Bank of India plans to issue a total of Rs 5,456 crore worth of additional tier-1 (AT1) bonds, with the bidding for the securities likely to be conducted on March 8, sources told Business Standard.

SBI’s AT1 bonds, which are likely to have a call option after 10 years, are expected to be rated AA+, the sources said. The bond sale has a base size of Rs 2,000 crore and a greenshoe option of Rs 3,456 crore. The payment for the bond issuance would occur on March 9.

Another state-owned lender, UCO Bank, is said to be looking to raise funds through the issuance of tier-1 bonds worth around Rs 500 crore in the second week of March, sources said.

Banks have tapped the bond market en masse over the past few months as a wide gap between growth in bank credit and deposits has exerted pressure on lenders to raise funds and finance the incremental demand for loans.

According to the latest Reserve Bank of India data, bank credit growth as on February 10 stood at 16.1 per cent year-on-year while deposit growth was at 10.2 per cent.

“SBI’s bond sale would essentially be because of the need to shore up capital as credit growth remains persistently strong; some sections of the market were of the view that SBI would perhaps renew AT1 issuances only in the next financial year,” a source aware of the development said.

“The coupon for the bond could likely be around 8.15-8.20 per cent, depending on the demand from large institutional investors. Bond yields have been rising over the past couple of weeks, you can see the difference between the coupon levels at which banks had raised money around September and now,” the source said. The coupon is the rate of interest paid out to investors.

With tighter liquidity in the banking system and apprehension of more rate hikes by the RBI leading to a recent rise in government bond yields, fund-raising through debt capital markets has turned more expensive.

So far in 2023, yield on the 10-year benchmark government bond has climbed around 10 basis points. Sovereign bonds are the benchmarks for pricing debt raised by corporate entities. Yields on 10-year corporate bonds have jumped around 13-14 bps so far this calendar year, while those on 3-year and 5-year corporate bonds have surged around 22-23 bps.

On February 20, SBI had sold AT1 bonds worth Rs 4,544 crore at a coupon of 8.20 per cent. This is sharply higher than 7.75 per cent that the bank paid for AT1 bonds in September 2022.