Banks are in a rush to raise funds through bonds as credit demand jumps amid a slack in deposit mobilisation. State Bank of India on Friday said its board will meet on December 14 to decide on raising capital through additional Tier-1 (AT-1) bonds.
SBI said the board will meet “to seek approval for the raising of additional tier 1 (AT1) capital by way of issuance of Basel III compliant debt instruments in rupees and/ or any other convertible currency through a public offer or private placement to Indian and/or overseas investors up to March 31, 2024’’.
In the first half of this fiscal, SBI raised Rs 6,872 crore through AT-1 bonds. The fund mobilisation by SBI and other lenders comes even though the banking sector is well capitalised, according to Reserve Bank of India (RBI) data.
However, with deposit growth lagging the demand for credit — which is at a decadal high — banks have been tapping the bond markets. According to the latest RBI data, credit growth stood at 17.2 per cent while deposits in the system rose 9.6 per cent.
Recently HDFC Bank mobilised Rs 15,000 crore through 10-year Tier-II bonds, which was the highest ever raised by a bank.
SBI’s need for more funds can be gauged from the strong demand for credit which it is currently witnessing. The lender recently said that it has surpassed the milestone of Rs 5 trillion personal banking advances in November 2022. It took 12 months for the bank to complete the last Rs 1 trillion growth, which occurred in November 2021.
Chairman Dinesh Khara recently expressed optimism that the current credit growth is sustainable and it will not lead to bad loans since many companies have deleveraged in the recent past.
AT-1 bonds are hybrid instruments with features of both equity and debt. It grabbed headlines in 2020 when Yes Bank wrote down bonds worth Rs 8,415 crore affecting several retail investors.
While the development led to banks shunning this instrument, it subsequently made a comeback. In 2021-22, banks raised Rs 42,800 crore from AT-1 bonds. They have reportedly mobilised over Rs 20,000 crore in the first half of this year.
PNB raised Rs 2,660 crore in AT-I bonds. Canara Bank, raised Rs 4,000 crore and SBI, Rs 6,872 crore. The RBI has stipulated that banks must maintain a minimum capital to risk-weighted assets ratio (CRAR) of 9 per cent.
