SBI’s Big Bond Issue Sparks Hopes for Boost in Tier II Debt Fundraising

State Bank of India (SBI) has made headlines this week with a major tier II bond issue that could reignite interest in this fundraising route, bankers say.

On Wednesday, SBI, India’s largest bank, secured ₹7,500 crore (about $894 million) through 15-year tier II bonds, offering a coupon rate of 7.42%, slightly better than the anticipated 7.45%. This move is expected to drive more banks to explore similar funding options, especially as they grapple with high credit-deposit ratios.

Soumyajit Niyogi, a director at India Ratings & Research, highlighted that with strong investor demand, long-term funding through bonds is currently more cost-effective than increasing deposit rates. This trend provides banks a useful tool to manage their capital needs.

Investors, including top insurance companies and provident funds, are increasingly turning to bank bonds due to limited supply from the government and states. These bonds offer attractive returns compared to government securities.

Looking ahead, Venkatakrishnan Srinivasan, founder of Rockfort Fincap, forecasts that banks will raise around ₹35,000 crore through tier II bonds this year—a 50% increase from the ₹23,900 crore raised in fiscal year 2024.

Several state-run and private banks, including Canara Bank, Indian Overseas Bank, Punjab National Bank, and HDFC Bank, have already secured board approvals for similar bond issues, signaling a strong interest in this funding avenue.