MUMBAI: (SBI) is rushing to raise funds before the interest rate cycle turns following the Reserve Bank of India’s expected liquidity normalisation measures.
India’s largest lender is set to sell Additional Tier 1 bonds worth up to Rs 6,000 crore, which are expected to open for subscription during Navratri festival next week, said three people familiar with the matter.
“The sale intimation should reach stock exchanges by Monday and will be up for bidding by October 13, the eighth day of Navratri celebration,” one of the persons cited above told ET.
ET reported on September 15 that SBI was planning to raise another Rs 4,000-5,000 crore following the successful mop-up of Rs 4,000 crore at 7.72 percent at the beginning of the month.
SBI Capital Market is helping the bank raise the money.
SBI declined to comment. SBI Capital could not be contacted immediately for comments.
The local market for such quasi-equity securities dried up completely after the capital market regulator made stricter valuation norms for mutual funds, once a major investor class for these papers.
The proposed bonds may offer rates in the range of 7.65-7.85 percent with a five-year call that allows an exit option for investors. Its earlier sets of securities are now yielding about 7.60% in the secondary market resulting in mark-to-market gains for existing investors. When bond yields fall, prices rise.
The Reserve Bank of India will announce its bi-monthly policy this Friday. According to an ET poll conducted among 24 banks, funds and financial institutions, it may keep its benchmark rates unchanged but lay down a roadmap for raising the reverse repo rate, mirroring other global central banks, which are going to end easy money policy soon.
Last week, a seven-day variable repo auction yielded a 3.99% cut-off mark, which was almost on par with repo rate at 4%.
“Bonds were earlier expected to be launched towards the end of October or November beginning. It has now been advanced, it seems,” said a local arranger for corporate bonds.
The base size of the second AT1 sale may be pegged at Rs 2,000 crore with an option to retain subscriptions up to Rs 6,000 crore.
AT1, also known as perpetual bonds, add to banks’ capital base unlike perpetual papers issued by a corporate. Such securities do not have any fixed maturity but generally have a five-year call option that allows an exit route for investors.
These bonds are rated two or three notches lower than any issuer’s corporate ratings. Both Crisil and India Ratings have rated those proposed AT1 papers with AA+ (Stable) grade.
“The bank is uniquely positioned; its retail asset growth as well as asset quality could be better than peers’,” India Ratings said in a note last Friday.
“Its ability to take large exposures at a lower cost on account of cost of deposits being among the lowest, also make it the preferred lender for most large corporates,” it said.
SBI remains the largest bank in India with a deposit market share of about 25.2% in the universe of domestic banks in FY21 compared with 24.7 percent in FY20.