SBI Raises Rs 5,000 Crore Through AT-1 Bonds At Coupon Of 8.34%

State Bank of India has raised Rs 5,000 crore by issuing additional tier-I or AT-1 bonds at the coupon rate of 8.34%.

The base issue of the AT-1 bond issue was Rs 2,000 crore, with a maturity in 10 years, India's largest public sector bank said in a statement on Thursday. "The tenor of this bonds is perpetual with a call option after 10 years and every anniversary thereafter." the largest public sector bank said in the statement. 

The AT-1 bonds are equity-like instruments which form a capital buffer for the bank and contribute to its capital strength.

The issue received 108 bids worth Rs 5,294 crore from an array of investors including mutual funds, provident & pension funds, banks and insurance companies. It was oversubscribed by about 2.65 times against the base issue, the bank said.

"The tight pricing and the diverse investor base for an instrument which has its own challenges shows the trust investors place in the bank," Dinesh Khara, chairman of SBI, said.

These bonds were rated AA+ with stable outlook by Crisil and ICRA.

The issuance is significant as the bank has been able to diversify and raise long-term non-equity regulatory bcapital, the bank said in the statement.

This comes after Canara Bank's fundraise of Rs 1,403 crore through AT-1 bonds at a coupon rate of 8.40% per annum.

The sentiment towards AT-1 bonds is seemingly returning as banks are looking to build capital reserves at a time when the Indian banking system is grappling with liquidity shortage and an increase in credit risk weights on unsecured lending by the RBI.

As on Sept. 30, SBI's capital adequacy ratio stood at 14.28%.

In 2023, the appetite for these equity-like instruments had taken a hit globally when Credit Suisse wrote down its AT-1 bonds worth $17 billion. In India, Yes Bank Ltd.'s AT-1 bonds worth Rs 8,000 crore were written off as part of its restructuring scheme following the RBI-mediated resolution in 2020.