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SBI raises ₹4,000 cr. via Additional Tier 1 bonds

SBI raises ₹4,000 cr. via Additional Tier 1 bonds

  • State Bank of India (SBI) has raised Rs 4,000 crore of Basel compliant additional tier 1 (AT1) bonds at coupon rate of 7.72 per cent.
  • In march 2021, SEBI had relaxed the norms of Basel III AT-1 bonds.
  • After new SEBI regulations, it is the first issuance of AT1 bonds in the domestic market.

Additional Tier-1 (AT-1) bonds:

  • AT-1 bond is a type of unsecured, perpetual bonds without any expiry date that banks are allowed to issue to meet their long-term capital requirement.
  • It is issued by banks to shore up their core capital base to meet the Basel-III norms.
  • The idea of AT-1 bonds were first conceptualized after the global financial crisis of 2007-08.

Features:

  • AT-1 bonds are like bonds issued by banks and companies, but have a comparatively higher rate of interests.
  • These bond can be acquired by two routes:
  1. Initial private placement offers of AT-1 bonds by banks seeking to raise money.
  2. Secondary market buys of already-traded AT-1 bonds.
  • These bonds can not be returned to the issuing bank and get the money.
  • However, the issuing banks have the option to recall AT-1 bonds issued by them (termed call options that allow banks to redeem them after 5 or 10 years).
  • It is regulated by the Reserve Bank of India (RBI).

Basel-III Norms

  • It is an internationally agreed set of measures developed by the Basel Committee on Banking Supervision in response to the financial crisis of 2007-08.

  • As per norm, banks were asked to maintain a certain minimum level of capital and not lend all the money they receive from deposits.

  • minimum total capital ratio --12.9% its total risk-weighted assets (RWA)

  • minimum Tier 1 capital ratio --10.5% of RWA

  • minimum Tier 2 capital ratio -- 2% of the RWA.

  • Banks' regulatory capital is divided into Tier 1 and Tier 2, while Tier 1 is subdivided into Common Equity Tier-1 (CET-1) and Additional Tier-1 (AT-1) capital.

  • Common Equity Tier 1 capital: It includes equity instruments where returns are linked to the banks’ performance. It have no maturity.

  • Tier- 2 capital: It consists of the bank's supplementary capital including undisclosed reserves, revaluation reserves, general provisions and loss reserves, hybrid capital instruments, subordinated debt and investment reserve account. It is less secure than Tier 1 capital.

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