SBI Raises $500 Million Through 5-Year Bonds

State Bank of India (SBI) raised $500 million by issuing 5-year bonds to international investors via its London branch. 

The bonds were priced at 82 basis points (bps) above the US Treasury yield, significantly improving from the initial guidance of 115 bps. This pricing marks one of the tightest spreads achieved by an Indian financial institution. The issue attracted $3 billion in bids, highlighting strong demand from global investors. SBI plans to use these funds for general corporate purposes and to support its overseas branches. HSBC acted as one of the arrangers for the bond issue.

Earlier this year, in January, SBI raised $600 million through 5-year bonds at a higher spread of 117 bps over the US Treasury. Over the past 2 weeks, market spreads for Indian banks have narrowed significantly, enabling SBI to secure more favourable pricing.

SBI Raises ₹10,000 Crore via Infrastructure Bonds

On the domestic front, SBI raised ₹10,000 crore through 15-year infrastructure bonds at a 7.23% coupon rate. The issue saw bids exceeding ₹11,500 crore, over twice the base size of ₹5,000 crore, with participation from provident funds, pension funds, insurance companies, and mutual funds. These funds will be used to finance infrastructure and affordable housing projects.

This marks the bank’s 7th infrastructure bond issue in FY25, raising the total to ₹30,000 crore. Previously, SBI raised ₹10,000 crore each in June and July at 7.36%.

Increased Demand for Long-Term Corporate Bonds

SBI’s aggressive pricing of its recent infrastructure bonds, at a spread of just 18 bps over comparable government bonds, reflects strong investor confidence. Corporate bond yields have risen by about 10 bps recently, increasing investor interest. Other issuers, like REC and IRFC, have also successfully raised funds at competitive rates.

Strategic Focus on Infrastructure Bonds

Infrastructure bonds offer significant advantages to banks, as they are exempt from regulatory requirements like the Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR). Unlike deposit-based funding, where banks must maintain 4.5% of deposits as CRR and 18% in SLR, infrastructure bond proceeds can be fully utilised for lending.

SBI plans to raise ₹20,000 crore through long-term bonds in FY25 to support credit growth. In Q2FY25, the bank raised ₹10,000 crore through long-term bonds and ₹15,000 crore via Basel-III-compliant Tier 2 bonds. Other public sector banks, such as Bank of Baroda, Canara Bank, and Indian Bank, have also tapped infrastructure bonds this year to address funding needs amid challenges in deposit mobilisation.

On November 19, 2024, SBI share price opened at ₹819.00, touching the day’s high of ₹820.30 as of 11:11 AM on NSE.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.