SBI raises `4,000 crore via AT1 bonds, more lenders to tap route

The country’s largest lender, State Bank of India, has raised Rs 4,000 crore in capital by issuing Basel III-compliant Additional Tier 1 (AT1) bonds. The coupon for AT1 bonds was fixed at 7.72 per cent.

According to analysts, the market could see more AT1 issuances from lenders over the next 12 months as public sector banks and large private sector lenders have a sizeable quantum of ATI bonds at Rs 31,290 crore, for which the call option falls due in FY22. Apart from growth capital requirements, lenders would have been contemplating replacing these bonds with fresh issuances as a part of capital budgeting for next year.

“This year (FY22) and FY23 a lot of AT1 bonds will come up for call option. Subject to investor appetite we could see more AT1 issuance by lenders over the next 12 months,” said Karthik Srinivasan, senior VP and group head- financial sector ratings, at Icra Ltd.

While perpetual debt instruments (PDIs) are issued by banks, NBFCs, corporates, banks are the largest issuers of perpetual bonds i.e ATI bonds, in terms of issuance and outstanding volumes.

By Icra’s estimates, the total stock of ATI bonds outstanding is Rs 1.03 lakh crore as on February 28, 2021, of which 70 per cent is issued by public sector banks. The AT1 instrument is perpetual in nature and has no maturity date, therefore payments theoretically continue forever. However, it can be called back by the issuer after five years or any anniversary date thereafter.

This was SBI's first AT1 bnd issuance in the local market after the new Sebi regulations kicked in.

“The issue garnered an overwhelming response from investors, with bids in excess of Rs 10,000 crore received against a base issue size of Rs 1,000 crore,” SBI said in a statement. The bank said it has decided to accept Rs 4,000 crore at a coupon of 7.72 per cent.

“This is the lowest pricing ever offered on such debt, issued by any Indian bank since the implementation of Basel III capital rules in 2013,” it said.

SBI was the first lender to raise capital via offshore AT1 bonds in 2016. While SBI has raised capital through AT1 bonds in the domestic market, private lender HDFC Bank raised $1 billion through AT1 bonds in the offshore market on August 18. The Basel III compliant AT1 notes were priced at 3.70 per cent. Axis Bank on Wednesday raised $ 600 million from offshore investors selling sustainable AT1 bonds at a coupon of 4.1 per cent.