SBI Secures Rs 7,500 Crore with Tier-II Bonds for Expansion

State Bank of India (SBI), the largest lender in the country, has secured Rs 7,500 crore in capital through Tier-II bonds to comply with regulatory norms and fuel its business expansion. According to a statement from SBI, these Tier-II bonds, with a 15-year maturity period, carry an interest rate of 7.42%. The bonds also include a call option after 10 years, which can be exercised annually thereafter. In the previous fiscal year (FY24), the bank had raised Rs 10,000 crore through Tier-II bonds at a 7.81% interest rate.

C S Setty, the newly appointed chairman, expressed that the broad participation and diversity of bids reflect the confidence investors have in the nation's largest lender. He assumed the role today following the departure of Dinesh Khara, who stepped down after completing his term.

The issue received an overwhelming response from investors, with bids surpassing Rs 8,800 crore compared to the base issue size of Rs 5,000 crore. In response, SBI decided to accept Rs 7,500 crore at a coupon rate of 7.42%, according to the bank.

SBI has board approval to raise up to Rs 25,000 crore by issuing Basel III-compliant Additional Tier-I and Tier-II Bonds to both domestic and international investors. Its Tier-II bonds hold a 'AAA/stable' rating from ICRA.

A total of 70 bids were received, indicating broad participation and diversity. Investors included provident funds, pension funds, mutual funds, and banks, as per the bank’s statement.

SBI executives described the pricing as appealing. With the US Federal Reserve signaling a potential rate cut soon and a decline in consumer inflation, there is anticipation of lower bond yields. 'Depending on market conditions and needs, the bank might consider issuing another round of Tier-II bonds, potentially up to Rs 7,500 crore,' an official stated anonymously.

As of June 30, 2024, SBI's capital adequacy ratio stood at 13.86%, marking a decline of 70 basis points from the previous year. The Common Equity Tier-I (CET1) ratio was 10.25%, the Additional Tier-I ratio was 1.63%, and the Tier-II ratio was 2.08%.

ICRA, in assigning the 'AAA' rating to SBI's Tier-II bonds, noted that the bank maintains a strong capital profile with significant potential to unlock value from its non-core businesses. Despite a robust 15.9% year-on-year growth in net advances in Q1 FY25, SBI's standalone capitalisation remained solid, with a CET1 ratio of 10.25% as of June 30, 2024, well above the regulatory requirement of 8.60%.