Banking giants HDFC Bank and State Bank of India (SBI) plan to collectively raise up to Rs 10,000 crore through sales of perpetual bonds this week, The Economic Times reported on September 5 citing people aware of the development.
The fundraise points to credit demand comeback in the world's fifth largest economy as bankers expect an over 10 percent year-on-year (y-o-y) loan growth in the current fiscal.
Moneycontrol could not independently verify the report.
Perpetual, or Additional Tier 1 (AT-1), bonds are a type of perpetual debt instrument that banks use to augment their core equity base and thus comply with Basel III norms. These bonds were introduced by the Basel accord after the global financial crisis to protect depositors. These are relatively risky as investors – mostly institutional players – may lose their entire capital as happened in the case of Yes Bank in 2020.
The majority of these bonds include a call option in the fifth year.
According to the report, SBI plans to raise up to Rs 7,000 crore for which it is in talks with the LIC of India and the Unit Trust of India (UTI). Private insurers have also been approached, the ET report highlighted. The bank intends to offer about 7.70-7.80%.
HDFC Bank is seeking to raise up to Rs 3,000 crore on September 6 when its bonds will be up for bidding on the stock exchange platform, it noted. Standalone provident funds, large banks, and family offices might buy into these instruments that are expected to offer 7.80-7.95% returns, ET reported quoting dealers.
Last week, the Bank of Baroda issued AT-1 bonds worth Rs 2,474 crore at a cutoff of 7.88 percent.
As per the latest data from the Reserve Bank of India (RBI), banks’ credit offtake increased 15.3 percent y-o-y for the fortnight ended August 12, up from 5.5 percent in the year-ago period.
In absolute terms, banks’ overall outstanding advances stood at Rs 124.3 lakh crore as of August 12, growing by Rs 16.5 lakh crore over the last 12 months.
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