SBI Raises ₹4,691 Crore Through Additional Tier 1 Bonds at 7.75% Coupon
Key Takeaways
- •SBI raised ₹4,691 crore by issuing Basel III-compliant Additional Tier 1 bonds at a 7.75% coupon rate.
- •The bond offering was oversubscribed and attracted 89 institutional bids, reflecting strong investor demand.
- •AT1 bonds are perpetual subordinated debt instruments that help banks bolster core capital and can absorb losses by converting to equity or being written down if capital falls below a specified threshold.
- •The proceeds will support SBI's capital adequacy ratios in line with Reserve Bank of India regulatory norms.
- •Indian banks have been actively issuing AT1 and Tier 2 bonds in recent months to fund credit growth and meet Basel III capital requirements.
The State Bank of India (SBI) has raised ₹4,691 crore through the issuance of Basel III-compliant Additional Tier 1 (AT1) bonds at a coupon rate of 7.75%. The offering attracted strong demand from investors, with the issue being oversubscribed and drawing 89 institutional bids.
AT1 bonds are a form of perpetual subordinated debt instruments used by banks to bolster their core capital under the Basel III regulatory framework. These bonds do not have a fixed maturity date and typically include provisions that allow the issuing bank to skip coupon payments under certain conditions without triggering a default. They are designed to absorb losses by either converting into equity or being written down if the bank's capital falls below a specified threshold. In a bank's capital structure, AT1 bonds rank senior to equity but subordinate to Tier 2 debt, senior debt, and depositor claims, making them higher-yielding than conventional bank bonds to compensate for the added risk.
SBI, India's largest public sector bank by assets, periodically accesses the domestic bond market to maintain and strengthen its capital adequacy ratios in line with Reserve Bank of India (RBI) norms. The 7.75% coupon reflects prevailing borrowing costs in the Indian debt market and SBI's credit profile as a public sector bank. Indian banks have been actively raising capital through AT1 and Tier 2 bond issuances to support credit growth and meet regulatory capital requirements, with several large lenders completing similar fundraises in recent months.
The Basel III standards, developed by the Bank for International Settlements (BIS), were introduced following the 2008 global financial crisis to improve the banking sector's ability to absorb shocks arising from financial and economic stress. Indian banks are required to maintain a minimum total capital ratio under RBI guidelines, with AT1 instruments counting toward Common Equity Tier 1 (CET1) supplementary capital.
The successful placement of these AT1 bonds reflects continued institutional investor appetite for high-quality bank capital instruments. Details regarding the specific allotment to individual bidders were not disclosed in the initial announcement.
Source: CNBC-TV18