BackSBI raises ₹4,000 cr via additional tier 1 bonds
The bank raised the sum in the perpetual bonds at a record-low coupon of 7.74%SBI raising ₹4,000 cr comes as a sign that investors are still willing to invest in these securities
PremiumMUMBAI : India’s largest lender State Bank of India (SBI) on Monday raised around ₹4,000 crore in perpetual bonds at a record-low coupon, a sign that investors are willing to invest in these securities once again after the Yes Bank episode, which saw the private lender’s perpetual bonds being written off under its rescue plan.
SBI raised the additional tier 1 (AT1) bonds at a coupon of 7.74%. AT1 bonds are unsecured, perpetual, high-risk bonds that banks issue to shore up their core capital base to meet the Basel III norms. Banks can skip paying interest on these bonds if their capital ratios fall below certain threshold levels. The Reserve Bank of India (RBI) can also ask a bank that is teetering on the brink to cancel its outstanding AT1 bonds without consulting its investors.
Perpetual bonds came under fire after they were written off as part of the rescue package for Yes Bank. This led many investors to drag the lender to court demanding that they be compensated. RBI said that risks to these bonds were well known to the investors and that the rules allow writing off the bonds if capital falls below the regulatory minimum.
Yes Bank wrote down its AT1 bonds worth ₹8,415 crore in the March quarter. Subsequently, several direct and indirect retail bondholders through mutual funds, insurance firms, and provident funds filed a case in Bombay high court against the mis-selling of these bonds.
SBI has AAA credit scores from local credit companies, its AT1 offering is rated AA+ and can be called back by the lender after five years or any year thereafter.
“It is a great trade for SBI to raise equity like capital at such low levels. Investors view SBI as a quasi-government entity. It’s a win-win situation for both the issuer and investors. The market is clearly distinguishing AT1 bonds issued by strong public sector banks and those by private banks," said Dhawal Dalal, CIO, fixed income, Edelweiss Asset Management Ltd.
Last month, Bank of Baroda had raised ₹764 crore through AT1 bonds at 8.25%. These bonds had a call option after five years from the date of issuance and every year thereafter. In a 26 August report, rating agency Crisil Ltd noted that post moratorium credit behaviour of borrowers is a key monitorable for the bank’s asset quality.
“SBI has provided moratorium to its borrowers in line with relief measures provided by the RBI and around 9.5% as on 30 June 2020 (23% as on 31 March 2020). Any change in behaviour of borrowers on the payment discipline can affect asset quality levels, post the moratorium. Also, while the one-time restructuring scheme announced by RBI will offer support to affected borrowers in the current environment, the details and operational implementation of the same will have to be seen," the credit rating agency said.
“Given this, gross non-performing assets of SBI could increase from current levels. This in turn could elevate credit cost, thereby impacting profitability of the bank, and hence, remains a key monitorable," it said.
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