State Bank of India (SBI) is likely to raise up to ₹7,500 crore through the issuance of tier-2 bonds next week to meet burgeoning credit demand that has persistently run ahead of deposit accretion by lenders.

"They (SBI) are likely to carry out a tier-2 bond sale for up to ₹7,500 crore with a base size of ₹3,500-4,000 crore and the remainder through a greenshoe option. Bidding for the bond sale is likely to take place on September 18 and the pay-in would be on September 19," a source aware of the developments said.

An email sent to SBI seeking a comment on the matter did not receive a response till press time. The funds would likely be used to meet regulatory requirements and push business growth, sources said.

Sources said that the bank would likely look at a coupon rate - or rate of interest paid to investors - of around 7.40% for the upcoming tier-2 bond sale. On August 28, SBI had raised ₹7,500 crore through the issuance of 15-year tier-2 bonds at a coupon rate of 7.42%.

Typically, SBI's bonds bear the lowest coupons amongst debt instruments issued by banks. This is owing to the fact that investors consider SBI's bonds particularly safe, given its status as the country's largest bank and its government ownership.

Sources that next week's bond sale would likely mark the last tier-2 issuance by SBI for the current financial year. "The bank is unlikely to carry out any more infrastructure or tier-2 bond sales in FY25. They had approval for raising funds worth ₹25,000 crore through tier-2 and tier-1 bonds. That leaves space for issuing around ₹10,000 crore of additional tier-1 (AT-1) bonds," another source said.

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Published on Sep 11, 2024, 07:54:00 AM IST