State Bank of India (SBI) raised Rs. 10,000 crores through Tier 2 bonds on November 1, 2023, at a coupon rate of 7.81 per cent. The bonds have 15-year tenure, with the first call option after 10 years. Call option is the option for early repayment, allowing the issuing bank to redeem these bonds.
The issue attracted an overwhelming response from investors with bids of Rs. 15,907 crores, it was oversubscribed almost 4 times against the base issue size of Rs. 4,000 crores with 98 bids, the bank release said. Dinesh Khara, SBI chairman said that the wider participation and heterogeneity of bids demonstrated investors’ trust place in the bank.
Based on the response, the Bank decided to accept Rs. 10,000 crores at a coupon rate of 7.81 per cent payable annually for a tenor of 15 years with a call option after 10 years and on anniversary dates thereafter, the release said. It is the bank’s first Basel III compliant Tier 2 Bond for the current financial year.
In corporate bonds, the issuer pays interest until maturity, usually semi-annually. Corporate bonds offer higher yields than government securities due to their credit risk.
This is the first Tier 2 Bond issuance by the SBI bank in the current financial year. Tier-2 bonds offer attractive coupon rates, more than government bonds and fixed deposits. These debt instruments diversify portfolios, reducing reliance on equities for capital growth.
However, investors must consider potential risks, including capital loss if a bank faces liquidation, credit risk tied to the bank's rating, and the limited liquidity of these bonds in secondary markets.
Bonds from SBI Bank has been rated AAA with stable outlook from CRISIL and India Ratings & Research Private Limited for these instruments. As per CRISIL website, instruments with this rating are considered to have the highest degree of safety regarding timely servicing of financial obligations. Such instruments carry lowest credit risk.