SBI raises Rs 7,500 cr via tier 2 bonds to meet regulatory needs, others

May look at another round of Tier II bond issuance as yields soften

State Bank of India, the country’s largest lender, has raised Rs 7,500 crore capital through Tier-II bonds to meet regulatory requirements and support business growth.

SBI, in a statement, said the coupon rate for Tier-II bonds with a 15-year tenor is 7.42 per cent. These bonds have a call option after 10 years and on each anniversary date thereafter. It had raised Rs 10,000 crore through Tier-II bonds at a coupon rate of 7.81 per cent in the last financial year (FY24).

C S Setty, its new chairman, said that wider participation and heterogeneity of bids demonstrated the trust investors place in the country’s largest lender. He took charge today after Dinesh Khara demitted office on the completion of his term.

The issue attracted an overwhelming response from investors, with bids in excess of Rs 8,800 crore against the base issue size of Rs 5,000 crore. Based on the response, SBI decided to accept Rs 7,500 crore at a coupon rate of 7.42 per cent, the bank said.

It has approval from its board to raise up to Rs 25,000 crore capital by issuing Basel III-compliant Additional Tier-I Bonds and Tier-II Bonds to domestic and overseas investors. SBI’s Tier-II bonds carry a “AAA/stable” rating from ICRA.

The total number of bids received was 70, indicating wider participation with heterogeneity of bids. The investors were across provident funds, pension funds, mutual funds, and banks, the bank said.

SBI executives said the pricing was attractive. With the US Federal Reserve indicating a policy rate cut in the near term and easing of consumer inflation, there is an expectation of softening yields on bonds. “The bank may look at another round of Tier-II bond offerings up to Rs 7,500 crore based on market conditions and requirements,” an official said on the condition of anonymity.

SBI had a capital adequacy ratio of 13.86 per cent as of June 30, 2024, down by 70 basis points from a year ago. The Common Equity Tier-I (CET1) ratio was at 10.25 per cent, the Additional Tier-I ratio was 1.63 per cent, and the Tier-II ratio was 2.08 per cent.

While assigning the “AAA” rating to Tier-II bonds, ICRA said SBI has a healthy capital profile with sizable value-unlocking opportunities from non-core businesses. The bank’s standalone capitalisation profile remained comfortable – CET I of 10.25 per cent as of June 30, 2024, against the regulatory requirement of 8.60 per cent despite the strong 15.9 per cent year-on-year growth in net advances in Q1 FY25.