SBI's mega tier II debt issue may boost fundraising via such notes: Bankers

State Bank of India's (SBI) aggressively priced tier II bond issue this week should rekindle fundraising through such notes, boosting volumes from last financial year, bankers said.
 

On Wednesday, India's largest lender SBI raised Rs 7,500 crore ($894.1 million) through 15-year tier II bonds, with a 10-year call option at 7.42 per cent coupon versus the initial expectation of 7.45 per cent or above.
 

WHY IT'S IMPORTANT
 

Funding via tier II bond issue opens up another option for banks to raise capital at a time when widening credit-deposit ratio has remained a major concern.
 

Soumyajit Niyogi, a director at India Ratings & Research said because of strong investor demand, long-tenor funding is cheaper currently as compared to raising deposit rates, and banks could tap this route to bridge the gap versus their lending.
 

CONTEXT
 

Corpus with insurers and provident funds have been mounting, and with limited supply from the central government and states, bank bonds have been the preferred destination for investors in the last few months.
 

Top insurance firms are looking to diversify investments into such papers, which are relatively safe and provide better returns than government bonds, a senior official from a large private insurance company said.
 

WHAT'S NEXT
 

Venkatakrishnan Srinivasan, founder and managing partner at Rockfort Fincap expects banks to raise about Rs 35,000 crore via tier II bonds this year, up nearly 50 per cent from Rs 23,900 crore raised in fiscal 2024.
 

State-run lenders - Canara Bank, Indian Overseas Bank, Punjab National Bank - and private lender HDFC Bank have already received board approvals to raise tier II funding.
 

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