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State Bank of India is likely to raise up to Rs 5,000 crore through the issuance of additional tier-1 (AT-1) bonds next week as the country’s largest mass lender looks to boost its core equity capital amid strong demand for credit in the economy.
“The exact quantum is yet to be finalised but based on latest discussions, they (SBI) are likely to raise up to Rs 5,000 crore through AT-1 bonds with a 10-year call option next week,” a market source said on condition of anonymity.
AT-1 bonds are perpetual bonds which have certain equity-like characteristics and features. These instruments are used by banks to augment their core equity capital.
Over the past couple of years, banks have faced pressure to mobilise funds through higher deposit rates or bond issuances as credit growth has outstripped deposit growth although the extent of that gap has started to moderate over the past couple of months.
So far in the current financial year, SBI has issued infrastructure bonds worth a total of Rs 20,000 crore. In September, SBI had raised funds worth Rs 7,500 crore through tier-2 bonds. The lender had raised the same quantum through tier-2 bonds in late August as well.
Bonds issued by SBI typically bear the lowest coupon rates – or interest rates paid to investors – due to the bank’s government ownership and status as the country’s largest lender.
As on September 20, bank credit growth was at 14.4% year-on-year, while deposit growth was at 12% over the same period, latest RBI data showed. The figures exclude the impact of the merger between HDFC and HDFC Bank
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