SBI raises ₹7,500 cr via Tier 2 bonds; here’s how PSU bank stock reacts

Shares of State Bank of India (SBI), the country’s largest lender, gained in opening trade on Thursday after it raised ₹7,500 crore through bonds to meet regulatory requirements and support business growth. In June this year, the public sector bank announced that it would raise up to ₹20,000 crore in the current financial year by issuing long-term bonds through a public or private placement.

The shares of SBI opened a tad higher at ₹809.35 against the previous closing price of ₹809.30 on the BSE. In the opening trade, the PSU bank gained as much as 0.17% to ₹810.70, while the market capitalisation inched up to ₹7.23 lakh crore. The SBI shares touched its 52-week high of ₹810.70 on June 3, 2024, and a 52-week low of ₹543.15 on October 26, 2023.  

In an exchange filing on Wednesday, SBI said that it raised ₹7,500 crore at a coupon rate of 7.42% through its first Basel III compliant Tier 2 bond issuance for the current financial year. The bonds are issued for a tenor of 15 years, with call option after 10 years and each anniversary dates thereafter.

 As per the release, the issue received an overwhelming response from investors with bids in excess of ₹8,800 crore against the base issue size of ₹5,000 crore. The total number of bids received was 70 indicating wider participation with heterogeneity of bids. The investors were across provident funds, pension funds, mutual funds, banks etc.

“The wider participation and heterogeneity of bids demonstrated the trust investors place in the country’s largest Bank,” says C S Setty, Chairman, SBI.

The instrument is rated AAA with stable outlook from ICRA Limited and India Ratings & Research Private Limited.

ICRA in its report says that ratings continue to factor in SBI’s majority sovereign ownership and its status as a domestic systemically important bank (D-SIB), given its dominant position in the Indian banking system. As on March 31, 2024, SBI had a market share of 22.6% in advances and 24.4% in deposits, which remain the highest in the banking system. The ratings also considered the lender’s healthy capital profile and strong operating profitability, which could help it absorb any unforeseen asset quality pressures.

“The Stable outlook on the ratings factors in ICRA’s expectation that SBI remains well-placed to absorb any unanticipated asset quality shocks through its operating profit, given the high provision coverage on legacy accounts. Further, ICRA continues to expect that SBI will benefit from its dominant position in the Indian banking industry, strong ability to raise capital, robust resource profile and sovereign ownership,” the rating agency said in its report.

As of June 30, 2024, SBI’s standalone capitalisation profile remained comfortable (CET I of 10.25% and Tier I of 11.78%), against the regulatory requirement of 8.60% and 10.10%, respectively, despite the strong 15.9% YoY growth in net advances in Q1 FY25.

The bank last raised equity capital of ₹15,000 crore from the market in FY18. ICRA believes that SBI’s capital requirements for the targeted growth, while maintaining a buffer of at least 100 bps over the regulatory ratios, remain limited, given its internal accruals as well as its market capitalisation. “It is well-positioned to raise the requisite capital from the divestment of non-core assets or the market if needed,” it said.

For the June quarter of FY25, SBI reported a net profit of ₹17,035 crore, up 0.89% YoY. The operating profit grew by 4.55% YoY to ₹26,449 crore. The net interest income (NII) surged 5.71% YoY, while the whole bank net interest margin (NIM) was 3.22% and domestic NIM was 3.35%.  

In terms of the balance sheet, the SBI’s credit growth was up by 15.9% year-on-year (YoY) at ₹37.5 lakh crore as on June 30, 2024, from ₹32.4 lakh crore as on June 30, 2023. The increase was driven by the healthy credit offtake across segments such as retail personal, agriculture, small and medium enterprise (SME) and the corporate sector. SBI holds a dominant position in the home loan and auto loan segments with a market share of over 26% and 20%, respectively, as on June 30, 2024, and an overall market share of 22.6% in the advances of the Indian banking sector as on March 31, 2024.

As of June 30, 2024, SBI’s loan book was dominated by retail personal advances, which constituted 35.89% of its gross advances followed by corporate advances (excluding SME) at 29.88%, SME advances at 11.62% and agriculture advances at 8.11%. The international loan book constituted 14.51% of its gross advances as on June 30, 2024.

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