Perpetual, or Additional Tier 1 (AT-1), bonds are quasi-equity instruments that will allow the country’s most valued lender and the biggest mass financier to raise their respective capital adequacy ratios by up to 30 basis points, giving them further headroom to advance funds to eager borrowers-both retail and institutional.
One basis point is 0.01%.
Credit demand is rising in India, which has now raced past the UK to emerge as the world’s fifth-biggest economy, expanding 13.5% in the three months to June. India’s credit demand has already touched a three-year-high, far outpacing the rate of deposit accretion by banks through FY23.
‘BoB Fundraising has Raised Hopes’
This is prompting top lenders to garner funds through perpetual bond sales.
“Successful fundraising by has stirred the AT-1 bond primary market, raising hopes for borrowers,” said Ajay Manglunia, managing director and head of debt capital market, . “Borrowers are now benchmarking their pricing levels in proportion to that. Investors with deployable cash also look convinced.”
SBI is set to raise up to Rs 7,000 crore for which it is in talks with the
of India and the Unit Trust of India (UTI). Private insurers have also been approached, sources told ET.
The bank intends to offer about 7.70-7.80%. The bidding process will reveal the final pricing on Wednesday. SBI Cap is helping the lender with the bond sale.
HDFC Bank is seeking to raise up to Rs 3,000 crore Tuesday when its bonds will be up for bidding on the stock exchange platform. Standalone provident funds, large banks and family offices might buy into these instruments that are expected to offer 7.80-7.95% returns, dealers said.
did not comment on the matter. Potential investors could not be contacted immediately.
No Fixed Maturity
AT-1 bonds do not have any fixed maturity but generally have a call option at the end of five years, when investors can exit provided the issuer exercises such an option. Bank of Baroda last week mopped up Rs 2,474 crore via perpetual bonds that offered 7.88% in what is being billed as “fine pricing.”
While this would be SBI’s only such bond sale in FY23, HDFC Bank is selling AT-1 instruments locally after a few years. About a year ago, it had first raised perpetual papers in the offshore market.
The rating of AT-1 bonds is generally a notch or two lower than an issuer’s overall rating.
Ratings graded SBI perpetual bonds AA+ (Stable) while the bank’s tier II bonds are rated triple-A (Stable).