State-run banks target ₹9,000 crore from Tier-II bonds by December

Fundraising rush follows SBI's record Oct issue as yields soften

State-owned banks, including Canara Bank and Punjab National Bank (PNB), are expected to tap the market by the last week of November, while others like Indian Bank and Indian Overseas Bank (IOB) are likely to do so next month. In total, ₹9,000 crore of Tier-II bond issuances are expected before the year ends.

 

This follows State Bank of India’s (SBI’s) ₹7,500 crore fundraise through Tier-II bonds at record levels in the second half of October. With bond yields softening, several state-owned banks are now planning to tap the domestic debt capital market to raise funds via Tier-II issuances. This marks a shift from earlier in the year, when such activity was largely absent, with only SBI and ICICI Bank accessing the market. 

Indian Bank and IOB aim to raise ₹1,000 crore each, while Bank of India plans to raise around ₹3,000 crore. PNB and Canara Bank are looking to raise up to ₹2,000 crore each.

 

“The yields have softened and SBI got a really good rate, so banks have lined up for fundraises. Given that no bank has come up with an infrastructure bond issuance, the Employees’ Provident Fund Organisation has large liquidity on its books and it has to invest,” said a dealer at a state-owned bank. “Canara Bank is coming around November 24 or 25; after that, we have PNB and IOB, and then other banks,” he added.

 

Last month, SBI raised ₹7,500 crore through Tier-II bonds maturing in 10 years at a coupon rate of 6.93 per cent — better than what the market had expected.

 

“The timing now looks far more favourable than earlier in the financial year. With system liquidity remaining comfortable and the Reserve Bank of India expected to cut rates by 25 basis points (bps) in December, long-term investors are showing renewed interest in locking into high-quality, longer-tenor bonds. Provident and pension funds are also likely to step up investments to meet regulatory targets before the quarter ends,” said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap LLP.

 

“Moreover, there’s a visible scarcity of top-rated long-term papers in the market, which will ensure strong demand support. Many banks had already secured board approvals earlier in the year but preferred to wait for better pricing conditions. SBI’s benchmark deal has now set the tone for others to tap the market,” he added.

 

Market participants said the issue was very tightly priced, with expectations in the 6.95–7 per cent range. However, the final pricing came in 7 bps lower than the upper end of that range, they added.

 

Tier-II bonds are debt instruments issued by banks to strengthen their capital base under Basel-III norms. They form part of a bank’s Tier-II capital, considered “supplementary” capital since it is less secure than Tier-I capital such as equity or perpetual bonds.

 

Experts pointed out that most of the funds raised through Tier-II bonds will likely go towards replacing older issuances that carried higher coupon rates, as most banks are currently sitting on comfortable capital levels.

 

Banks have been largely absent from the domestic debt capital market since the start of 2025-26, dampening overall corporate bond market activity so far. In 2024-25, banks had tapped the domestic bond market aggressively for long-term infrastructure bonds, as deposit growth lagged loan growth.

 

Because banks have been mostly inactive in the bond market this year, experts said total fundraising by Indian companies, including banks, may fall short of last year’s figure of close to ₹11 trillion.

 

PSU banks back in bond mode

 

·         Canara Bank, PNB, Indian Bank, IOB, BoI set to tap the market

 

·         Follows SBI’s ₹7,500 cr issue in Oct at a 6.93% coupon — the year’s lowest

 

·         Softer yields, EPFO liquidity spark renewed fundraising

 

·         Most banks refinancing older, high-cost bonds amid strong capital positions

 

·         Fresh supply may lift a sluggish corporate bond market in FY26

 

·         Overall fundraising by Indian firms likely to trail last year’s ₹11 trn mark