Mumbai: The State Bank of India (SBI) is planning to raise about ₹4,000 crore via bond sales as it is gearing up to strengthen its capital base with credit demand reviving gradually. The lender is weighing options to raise money either through local additional tier-1 securities for the third time in this financial year or rupee-denominated ‘masala’ bonds for overseas investors, said three people aware of the matter.
The overseas choice is likely to be more expensive by at least 2 percentage points subject to fund usage, said dealers.”The final decision would be taken only after their September quarter earnings announcement this week,” said one of the persons, who did not wish to be identified.
The state-run bank has reached out to some foreign investment banks seeking opinion on a possible ‘masala’ bond sale. Initial feedback suggests the borrowing cost will be higher considering currency covers and withholding taxes. Masala papers have an obligation of 5% withholding tax, which an issuer has to bear with international investors betting on Indian currency debt securities offshore. SBI did not reply to ET’s queries regarding the fundraising.
The banks raised additional tier-1 (AT1) bonds in the past two months, raising ₹4,000 crore and ₹6,000 crore in two tranches by offering 7.72%. Private banks, bond houses, wealth managers and insurers, among others, subscribed to those papers.
Such bond sales by the SBI revived the local market for such quasi-equity securities, which had dried up completely after the capital market regulator made stricter valuation norms for mutual funds, once a major investor class for these papers. Recently, Canara Bank raised AT1 papers.
AT1, also known as perpetual bonds, add to banks’ capital base unlike perpetual papers issued by a corporate entity.
Such securities do not have any fixed maturity but generally have a five-year call option that allows an exit route to investors.