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State Bank of India has raised Rs 5,000 crore through the sale of additional tier-1 (AT-1) bonds on Wednesday, with the country’s largest mass lender augmenting its core equity capital amid firm credit growth in the economy.
The bank issued the AT-1 bonds at a coupon rate of 7.98%, debt capital market sources said. SBI’s AT-1 bonds have a call option after 10 years. The coupon rate is the rate of investors paid out to investors.
ET had reported on October 15 that SBI was likely to raise up to Rs 5,000 crore through the issuance of AT-1 bonds in the current week. AT-1 bonds are perpetual bonds which have certain equity-like characteristics and features. These instruments are used by banks to boost their core equity capital.
With government bond yields having fallen sharply over the past few months, cost of raising funds through debt has eased for banks, with SBI’s latest issuance bearing a much lower coupon than its previous AT-1 bond sale.
So far in 2024, yield on the 10-year benchmark government bond has declined by 37 basis points. Government bond yields are the benchmarks for pricing corporate debt. The 10-year bond yield closed at 6.81% on Wednesday.
In January, SBI had raised Rs 5,000 crore through AT-1 bonds with a ten-year call option at a coupon rate of 8.34%. Bonds issued by SBI typically bear the lowest coupon rates due to the bank’s government ownership and status as the country’s largest lender.
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.
As on October 4, bank credit growth was at 14.1% year-on-year, while deposit growth was at 12.2% over the same period, latest Reserve Bank of India data showed.
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.
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