State Bank of India is set to raise Rs 3,000-Rs 5,000 crore by selling perpetual bonds, a quasi-debt instrument, likely signalling that it has begun to expand lending.
Indias biggest bank will be selling such bonds after a year and the securities are likely to offer 9.3-9.7 per cent , people with knowledge of the matter told ET. The terms are yet to be finalised. SBI Cap is said to be helping in the sale.
The bonds will come up on the stock exchange bidding platform in the next few weeks and the bank has reached out to investors and domestic arrangers to gauge demand, the people said. An email sent to SBI remained unanswered at the time of publication of this report.
Yields of perpetual bonds to top-rated private banks are now 10-20 basis points higher than the level in the secondary market. The board of the Reserve Bank of India has eased buffer capital requirement norms for banks.
“The proposed bond sale may take a few weeks time, especially after the outcome of the RBI board meeting. The bank is now looking for a finer rate, may be around 9.5 per cent ,” said one person adding that insurers, mutual funds will be keen to have SBI debt papers in their portfolio.
SBI reported a profit in the three months ended September after three consecutive quarters of losses as provisions slowed and retail and corporate loans grew. Net profit was Rs 945 crore compared with a Rs 4,876 crore loss in the preceding quarter, although it was 40 per cent lower than Rs 1,582 crore reported a year earlier.
Net interest income increased 12 per cent to Rs 20,906 crore, powered by an 11 per cent expansion in domestic credit, led by a 14 per cent growth each in retail and corporate advances.
Under the Basel-III requirement, an international standard to maintain capital, perpetual bonds are more of a quasi-equity obligation. If an issuing bank incurs losses in a financial year, it cannot make coupon payments to bondholders even if it has enough cash. These securities are known as additional tier 1 in market parlance and have no fixed maturity.
A company can withdraw such bonds from the market by exercising a call option, an exit route for investors.
In March, government-owned IDBI Bank, Bank of Maharashtra, Dena Bank, Uco Bank, Corporation Bank and United Bank of India collectively withdrew Rs 13,000-14,000 crore worth of perpetual bonds as they availed of a special regulatory dispensation. These banks were under Prompt Corrective Action, a regulatory austerity measure aimed at restoring their health.
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