SBI and Union Bank of India set to raise Rs 5,500 crore

MUMBAI – The (SBI) and Union Bank of India are set to raise a total of about Rs 5,500 crore in 15-year bonds locally, people familiar with the matter said, reflecting increasing demand for retail loans amid a broad-based economic revival.

SBI, the country’s biggest mass lender, plans to raise Rs 4,000 crore in 15-year papers with a 10-year call option that allows early exit for investors should the lender exercise the option. The bonds, rather rare because of their long tenures, would be sold through auctions early next week.

The bank is said to be in talks with LIC, UTI,

, and Life for subscriptions, dealers told ET. SBI Capital Market is the sole arranger in the bond sale.

The proposed SBI bonds may offer coupons in the range of 7.40-7.50 per cent, which will finally be determined through a bidding process probably running Tuesday.

Union Bank of India and SBI did not comment on the matter. Individual investors and the arranger could not be contacted immediately for comments.

While LIC of India and UTI can invest through pension funds or New Pension Plans (NPS), large banks may also subscribe to SBI bonds through their provident funds.

“SBI is not a frequent issuer of 15-year papers nowadays,” said Ajay Manglunia, managing director and head of debt capital market, . “That’s why investor demand is likely to be high for such top-quality papers.”

Two years ago, SBI had raised such 15-year tier-II bonds worth Rs 8,921 crore, offering 6.80%.

“However, the bank is likely to offer 10-20 basis points lower than what any other large public sector lender offers to sell similar bonds,” Manglunia said.

One basis point is 0.01%.

Rating company

rated SBI bonds triple-A. It believes SBI’s incremental capital requirements remain limited for the targeted growth while maintaining a buffer of at least 100 basis points over the regulatory ratios.

“Moreover, the bank’s ability to raise capital, if required, from the markets remains strong,” ICRA said in a rating release on Wednesday.

Banks are required to maintain a minimum Capital to Risk-Weighted Assets Ratio (CRAR) of 9% on an ongoing basis. SBI’s CRAR was at 13.4% in the June quarter this fiscal versus 13.7% in the corresponding quarter a year ago, according to ICRA.

Union Bank of India is aiming to raise up to Rs 1,500 crore in the next two weeks with a base size of Rs 500 crore. Those bonds, too, are likely to have a maturity period of 15 years with a call option available at the end of 10 years, dealers said. This will be the bank’s first such bond sale in FY23.

bonds are generally rated AA+.

“To augment credit growth including retail loans, banks are gearing up to raise resources strengthening their capital base,” said Venkatakrishnan Srinivasan, founder and managing partner, Rockfort Fincap, a Mumbai-based debt advisory firm.

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Tier-I bonds are loss-absorbing. They can either be converted into equity or be written off. It is billed as a risky product.

Tier II bonds face trouble only when the Reserve Bank of India puts any bank under Point of Non-viability (PONB).

Both categories of bonds strengthen the capital base, creating space for loan expansions.

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