State Bank of India Plans to Raise ₹5,000 Crore Through Perpetual Bonds: Report

The State Bank of India (SBI) is planning to raise approximately ₹5,000 crore ($573.38 million) through Basel III-compliant additional Tier-I perpetual bonds before the end of February, according to three sources familiar with the matter.

As per the sources, the country's largest lender may include a call option, exercisable after either five or ten years.

"The bank has initiated discussions regarding the issuance, and a final decision on the call option and launch timing will be determined based on investor feedback. Insurance companies are likely to be among the bidders," one of the sources stated.

Invest in Indian Markets and Unlock Future Potential With 5paisa!

Open Account Now

SBI has not yet responded to a Reuters email request for comment. The sources preferred to remain anonymous as they are not authorized to speak to the media.

This would mark the first such issuance by any lender in over three months. Interestingly, SBI was the last to utilize this route, having raised ₹5,000 crore in October at a 7.98% coupon rate, with a 10-year call option.

The issuance comes at a time when investor sentiment toward perpetual bonds is improving, particularly after regulatory changes by the Securities and Exchange Board of India (SEBI). Earlier this year, SEBI allowed mutual funds to value perpetual bonds based on their call option rather than assuming perpetual maturity, a move that has increased demand for these instruments. This change has made it more attractive for mutual funds to participate in such issuances, alongside insurance companies and pension funds.

According to market experts, SBI’s upcoming bond issuance is expected to see strong demand, given the bank’s solid credit profile and the stability of the Indian banking sector. As one of the largest and most trusted financial institutions in India, SBI enjoys a broad investor base, including domestic and foreign institutional investors.

Analysts also believe that SBI’s move may set the stage for other public and private sector banks to follow suit, as the demand for Basel III-compliant instruments is expected to rise. Several banks are keen to strengthen their capital buffers, and perpetual bonds provide a viable route for raising funds without immediate repayment obligations.

SBI’s decision to issue these bonds could encourage other banks to tap into the market for similar instruments. The recent rise in interest rates globally has impacted borrowing costs, making it essential for banks to carefully time their issuances. By opting for a call option, SBI is providing investors with a degree of certainty regarding potential exit opportunities, which is likely to boost investor confidence.

Additionally, the success of this issuance could signal increased market confidence in the Indian banking system’s ability to manage capital requirements efficiently. If SBI secures competitive pricing, it may encourage mid-sized and smaller banks to explore similar fundraising opportunities.

With economic recovery gaining momentum and credit demand rising, banks are actively looking for ways to strengthen their capital reserves to support future lending. The successful issuance of SBI’s perpetual bonds could mark the beginning of a new wave of fundraising activity in the sector, with more banks expected to follow suit in the coming months.