The Tier-II bonds with a maturity of 15 years were raised at a coupon rate of 6.8%. The credit spread stood at 35.5 basis points over the corresponding government security yield
State Bank of India (SBI) on Wednesday raised ₹8,931 crore through a bond sale, the biggest offering by India’s largest bank this year. The Tier-II bonds with a maturity of 15 years were raised at a coupon rate of 6.8%. The credit spread stood at 35.5 basis points over the corresponding government security yield.
The total issue was for ₹10,000 crore with ₹2,000 crore as the base issue size. The Tier-II bonds, rated AAA, have a call option after 10 years and every year thereafter. The issuance is being managed by SBI Capital Markets Ltd.
SBI’s board had approved a capital plan for FY21, whereby the bank proposed to raise capital through one or more ways from among Tier-II, AT1 and equity instruments.
SBI is selling the bonds at a time when the banking sector is expected to see an increase in gross non-performing assets and needs to beef up capital ratios in anticipation of more bad loans as an economic fall-out of the covid pandemic.
Last month, SBI had cut its loan-growth target from 10% to 8% for FY22, and said it will be cautious on boosting credit.
“After a fairly long time, SBI has raised the largest ever amount in its Tier-II bonds issue. It has been subscribed to by long-term investors like insurance and retirement trusts. In the current time we see most of the banks have been raising capital, as that’s the need to handle the growth and capital needs that shall be required. Raising capital via debt is a preferred option than to dilute equity in current market," said Ajay Manglunia, managing director and head, fixed income, JM Financial.
Reserve Bank of India governor Shaktikanta Das had advised banks to proactively raise capital and not wait for a difficult situation to arise. As per the latest Financial Stability Report (FSR) released by RBI, gross bad loans of banks may jump to 12.5% by the end of this fiscal under the baseline scenario, from 8.5% in March 2020. If the situation worsens further, the ratio may escalate to 14.7%, the report said.
SBI reported a net profit of ₹4,189.3 crore in the June quarter, up 81% year-on-year (y-o-y), owing to a rise in net interest income. Its profit was also backed by a one-time gain of ₹1,539.73 crore on sale of 2.1% stake in SBI Life Insurance Co. Ltd in June.
SBI said that during the June quarter it has made an additional provision of ₹1,836 crore for covid-19 and it held provisions of ₹3,008 crore for the pandemic as on 30 June.
The bank’s asset quality improved in Q1FY21.
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