State Bank of India (SBI) recently raised 46.91 billion rupees through Basel III compliant additional Tier I (AT-1) perpetual bonds. This successful issuance, characterized by strong institutional demand, is expected to encourage other Indian banks to launch similar offerings to strengthen capital buffers and support ongoing credit growth and balance-sheet expansion across the sector.
SBI's 46.91 Billion Rupee AT-1 Issuance
SBI raised approximately $492 million via perpetual bonds that lack a maturity date but include a call option at the end of five years. The bank will pay investors an annual coupon of 7.75%. The offering drew significant interest, with bids exceeding 60 billion rupees. Subscriptions came from a diverse group of institutional investors, including mutual funds, pension funds, provident funds, and various lenders. According to Venkatakrishnan Srinivasan of Rockfort Fincap, the cut-off reflects prevailing market expectations and demonstrates that institutional demand remains resilient despite current market volatility.
Call Option Deadlines for State-Run Banks
The SBI issuance arrives as five large state-run banks face call option deadlines for perpetual bonds totaling 307 billion rupees over the next eight months of this fiscal year. SBI holds 140 billion rupees in bonds due for a call option. Other institutions facing similar deadlines include Union Bank of India (60 billion rupees), Canara Bank (40 billion rupees), and a combined 67 billion rupees between Bank of Baroda and Punjab National Bank. Merchant bankers suggest these upcoming exits could prompt these banks to raise fresh perpetual debt to maintain their capital structures.
Key Takeaways
- SBI raised 46.91 billion rupees through Basel III compliant AT-1 perpetual bonds with a 7.75% annual coupon.
- Five state-run banks have call options due on perpetual bonds totaling 307 billion rupees within the next eight months.
- The SBI offering was oversubscribed, drawing bids worth over 60 billion rupees from institutional investors.
FinanceInsyte's Take
In our view, the strong appetite for SBI's AT-1 bonds establishes a critical pricing benchmark for the Indian banking sector. This signals that institutional investors are still willing to absorb high-yield, perpetual instruments despite volatility. As five major state-run banks approach significant call option deadlines, we expect a wave of refinancing. This trend suggests that banks are prioritizing capital resilience to fuel credit growth, making AT-1 bonds a primary tool for balance-sheet expansion.
Source: REUTERS
