SBI plans to raise Rs11,100 crore through AT-1 bonds

Mumbai: State Bank of India (SBI) on Wednesday said that its committee of directors for capital raising had authorised the bank to raise Rs.11,100 crore worth additional Tier-I (AT-1) capital through issuance of Basel III-compliant perpetual debt instruments.

In a notification to the stock exchanges, the bank said that these perpetual debt instruments will be issued in dollar or rupee terms through private placements to domestic and/or international investors, in as many tranches as it may be considered appropriate by the lender.

The fund-raising announcement comes at a time when the bank is already working on a plan to merge with itself its five associate banks—State Bank of Bikaner and Jaipur, State Bank of Travancore, State Bank of Mysore, State Bank of Patiala and State Bank of Hyderabad—and Bharatiya Mahila Bank.

On Friday, the boards of SBI, its associate banks and Bharatiya Mahila Bank approved individual swap ratios for the merger.

Given the massive losses that public sector lenders have piled up in 2015-16 with some making losses even in the first quarter of 2016-17, banks are fast running out of distributable reserves to service these regular coupon payments on their AT-1 bonds, Mint reported on Wednesday. Karthik Srinivasan, analyst at ratings agency ICRA, points to this emerging risk. “The risk of servicing the coupon on some of these bonds has increased, should the profits of the current year be inadequate, as the accumulated distributable reserves have depleted significantly over FY2016 and Q1 FY2017,” wrote Srinivasan in a note dated 22 August.

According to the rating agency, five out of the 21 public sector lenders it tracked have negative or very low distributable reserves as of 31 March.

On a cumulative basis, public sector banks have issued about Rs.17,000 crore worth of AT-1 bonds since 2007 when the RBI first allowed such issuances. IDBI Bank raised Rs.1,500 crore through these bonds on Tuesday. The coupon payments are dearer as these bonds were raised at over 10% yield.

State Bank of India