SBI Raises Rs.4,000 Cr via Issue of AT-1 Bonds

State Bank of India announced that it had raised Rs.4,000 crore through the issue of Additional Tier-1 (AT-1) Bonds. These AT-1 bonds are perpetual bonds that do not have any specified maturity. However, the issuer has the prerogative to call back the bonds after a period of 5 years, which is generally the norm. However, the interest will be paid on a periodic basis on these bonds.

One of the big advantages of AT-1 bonds is that they are treated as quasi-equity and, being perpetual in nature, they are at par with equity. Hence, any AT-1 bond raising directly boosts the Tier-1 capital of the bank. The coupon rate on the AT-1 bonds has been fixed at 7.72%, which is one of the most competitive rates in that segment.

The base issue size was Rs.1,000 crore, but SBI received bids for almost Rs.10,000 crore. Finally, SBI has decided to accept bonds worth Rs.4,000 crore at the coupon of 7.72%. AT-1 bonds had come under some sort of cloud last year after Yes Bank repudiated its AT-1 bonds but that is normally not a concern for investors when it comes to blue-chip banks like SBI.

SBI was able to get a competitive coupon rate considering its AAA rating from all the domestic credit rating agencies. However, the AT-1 Bonds are rated AA+ considering the hybrid nature of these bonds and the higher risk implicit in these instruments since they are technically of perpetual maturity.

SBI has a capital adequacy of 13.66% as of June 2021 and needs to continuously boost its capital base in tune with the expansion of its loan book. Being the dominant PSU bank in India, it is expected to be one of the big beneficiaries of the post-pandemic boost to lending. The AT-1 bonds will help SBI to boost its Tier-1 capital in that direction.

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