SBI to raise Rs 3300 Crore via additional Tier-1 Bonds

State Bank of India (SBI), the country’s biggest lender, is planning to raise up to Rs.3,300 cr through additional tier-1 or AT1 bonds to shore up capital adequacy. This is the 2nd time in recent months that the SBI is looking to raise funds via this route. In the month of September, it had issued AT1 bonds worth Rs.2,100 cr to YES Bank at a coupon of 9%.

CRISIL assigns ‘AA+’ for SBI Bonds:

CRISIL has assigned “AA+” for these bonds. For arriving at the ratings, it has combined the business and financial risk profiles of the bank and its subsidiaries, including the associate banks, collectively termed as the SBI group. This is due to the associate banks and subsidiaries being an integral part of SBI’s growth strategy. As per a senior executive of State Bank of India (SBI), the rates on long-term paper have softened since the beginning of September. They want to be ready to take the benefit of falling yields, he added.

The yield on 5-year government paper has declined from 7.02% in early September to 6.71%; for 10-year paper, it has seen a dip from 7.12% level to 6.73% now.

CRISIL’s ratings on the bank’s debt instruments not only factor in the SBI group’s dominant market position in the Indian banking sector, adequate capitalization, strong resource profile, and profitability but also in the continued strong support the bank is expected to receive from its majority owner, the Indian government, both on an ongoing basis and in the time of distress.

SBI floated nation’s very first AT1 bonds in the ides of September:

In mid-September, SBI also floated India’s first overseas AT1 bond offering and raised 300 million dollars. Albeit it pruned issue size from 500 million dollars to 300 million dollars on its tight pricing stance, the State Bank of India fixed the coupon at 5.5%. The price for this issue is estimated to become the benchmark for other banks of the country planning similar overseas bond offering.

SBI’s capital adequacy ratio (CAR) and Common equity tier-1 (CET-1):

SBI’s CAR – capital adequacy ratio was 14.01% in June 2016, as against 12% a year ago. CET-1 or Common equity tier-1 was 10.71% in June this year, as against 9.59% last year. 
SBI’s capital adequacy ratio (CAR) improved substantially in the first quarter of FY17 because of gains from revaluation of real estate assets. It boosted Common equity tier-1 (CET-1) by Rs.14,383 cr (72 bps).