Table of Contents
Introduction
SBI’s Mega Fundraising Strategy Explained
What Are AT1 and Tier-II Bonds?
Qualified Institutional Placement (QIP) – An Overview
Floor Price and Market Positioning
Capital Adequacy Ratio: Where SBI Stands
Why SBI is Raising Capital When It Claims It Doesn’t Need It
Fundraising in Context: SBI vs. Peers
FY25 Bond Issuance Trends
FY26 Bond Outlook: Tepid but Tactical
Risk and Investor Sentiment in AT1 Bonds
PSU Banks’ QIP Strategy Aligned with Disinvestment Goals
Why QIP is Being Preferred Over AT1 Bonds
Role of Surplus Liquidity and CD Ratios
The Future of PSU Bank Fundraising in India
Conclusion
- Introduction
The State Bank of India (SBI), India’s largest and most influential lender, has embarked on an ambitious ₹45,000 crore fundraising plan in FY26. This capital will be raised via a combination of debt instruments like Basel III-compliant AT1 and Tier-II bonds and equity instruments such as Qualified Institutional Placements (QIPs).
This development comes at a time when the Indian banking sector is witnessing an evolving landscape of credit demand, capital adequacy regulations, and market sentiment. The fundraising effort, approved by SBI’s board, aims to strengthen the bank’s capital buffers, boost growth potential, and align with strategic policy shifts.
- SBI’s Mega Fundraising Strategy Explained
Breaking Down the ₹45,000 Crore Plan
₹20,000 crore to be raised via debt instruments (AT1 and Tier-II bonds).
₹25,000 crore through QIPs (Qualified Institutional Placements).
This is part of the bank’s annual capital planning strategy for FY26.
Key Highlights:
SBI aims to improve its capital adequacy ratio (CAR) and strengthen its Common Equity Tier 1 (CET1) capital.
Fundraising is not due to an immediate need for capital but is a strategic move to prepare for potential opportunities and challenges.
This is SBI’s first QIP since FY18, when it raised ₹18,000 crore.
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- What Are AT1 and Tier-II Bonds? Understanding these financial instruments is crucial to grasp SBI’s fundraising dynamics.
AT1 Bonds – Perpetual and Risk-Laden
Known as Additional Tier-1 bonds, these are perpetual in nature.
Do not have a maturity date, but include a call option after five years.
Designed to absorb losses in case of a financial crisis.
These contribute to the core capital (CET1).
Tier-II Bonds – Long-Term, Less Risky
Have a fixed maturity, usually 10-15 years.
Contribute to the overall capital adequacy ratio (CAR).
Generally less risky than AT1 bonds, hence lower interest (coupon) rates.
Comparison:
Feature AT1 Bonds Tier-II Bonds
Maturity Perpetual Fixed (10-15 years)
Capital Category Core Capital (CET1) Supplementary Capital (CAR)
Risk Level High Moderate
Investor Sentiment Weaker (post Yes Bank crisis) Stable
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- Qualified Institutional Placement (QIP) – An Overview
QIP is a tool for companies to raise capital from qualified institutional buyers (QIBs) without undergoing elaborate regulatory procedures associated with public offerings.
Why SBI is Using QIP Now?
Ideal for quick fund mobilization.
Helps SBI dilute government ownership gradually (supporting disinvestment goals).
Improves the bank’s market positioning and investor sentiment.
Attracts long-term institutional investors.
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- Floor Price and Market Positioning
SBI has set a floor price of ₹811.05 per equity share for the QIP, a 2.5% discount to its closing price of ₹831.70 on NSE.
Implications:
The small discount indicates strong investor confidence.
The price positioning makes it attractive for institutional investors.
The QIP is likely to garner strong subscription, potentially oversubscribed like past PSU bank QIPs.
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- Capital Adequacy Ratio: Where SBI Stands
As of March, SBI’s capital adequacy ratio stood at 14.25%, comfortably above the regulatory requirement of 12.1%.
Comparison With Peers:
HDFC Bank: 19.6%
Bank of Baroda: 17.2%
This indicates that while SBI is well-capitalized, it lags behind private sector peers.
Why CAR Matters:
Ensures financial stability of the bank.
Enhances creditworthiness and investor trust.
Necessary for supporting loan growth and absorbing potential losses.
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- Why SBI is Raising Capital When It Claims It Doesn’t Need It
Statements by Chairman C.S. Setty:
“We don’t need capital to meet CRAR norms.”
“But we want to be ready to raise capital if we get the right market value.”
Reasons for Proactive Fundraising:
Prepares SBI for future credit expansion.
Ensures strategic flexibility in market downturns.
Supports digital transformation and tech investments.
Aligns with government’s disinvestment roadmap.
- Fundraising in Context: SBI vs. Peers
FY25 Recap:
SBI was the largest bond issuer in FY25, raising ₹27,500 crore.
Breakdown:
₹5,000 crore via AT1 bonds
₹22,500 crore through tier-II bonds
FY26 Landscape:
PSU banks like PNB, BoM, Indian Overseas Bank, and Central Bank also raised capital via QIPs.
SBI’s QIP is the largest among PSU banks in recent years.
Other Banks’ QIP Details:
Punjab National Bank: ₹5,000 crore
Bank of Maharashtra: ₹3,500 crore
Indian Overseas Bank: ₹1,436 crore
UCO, Punjab & Sind, Central Bank: ~₹2,000 crore collectively
