Mumbai: The State Bank of India is on a mega fundraising drive in FY26, with plans to tap both the debt and equity markets for up to ₹45,000 crore to beef up its capital ratios.
The state-owned lender’s board on Wednesday approved raising up to ₹20,000 crore through Basel III-compliant additional tier-I (AT1) and tier-II bonds. The board approval for the bond issues comes even as the qualified institutional placement (QIP) of the bank’s shares opened for subscription—its first since FY18 when it raised ₹18,000 crore. State Bank of India (SBI) has set the floor price for the QIP at ₹811.05 per equity share.
The board approval for bond issues is part of the bank’s annual capital planning, which includes QIPs of up to ₹25,000 crore.
SBI chairman C.S. Setty had said earlier that the bank annually passes an enabling resolution to strike a balance between growth needs and strengthening its common equity tier-I (CET1) capital, Mint reported in June. While the bank does not currently require capital to meet CRAR (capital adequacy ratio) norms for credit growth, it remains open to raising equity capital if a favourable opportunity arises. Setty added that the timing remains uncertain, as the bank is looking for the “right value”.
SBI’s capital adequacy ratio or risk buffer stood at 14.25% as of March against the regulatory requirement of 12.1%. Still, the bank lags peers like HDFC Bank (19.6%) and Bank of Baroda (17.2%) as of March.
AT1 bonds, also known as perpetual bonds, do not have a maturity date but come with a call option, typically after five years. Tier-I bonds contribute to a bank’s core capital ratio, while tier-II bonds contribute to the overall capital adequacy ratio (CRAR). Core capital and capital adequacy are part of a bank’s risk buffers.
A total of ₹8,000 crore was raised in FY25 via tier-I bonds by SBI and Canara Bank. On the other hand, banks mobilized a cumulative ₹37,870 crore through tier-II bonds, of which ₹36,500 crore was raised by public sector banks, as per data by Rockfort Fincap LLP.
SBI was the largest issuer of bank bonds in FY25, raising a cumulative ₹27,500 crore during the year. Of this, ₹5,000 crore through AT1 bonds and ₹22,500 crore through multiple tranches of tier-II bonds. With this estimated fundraising for FY26, the public sector lender is expected to be the largest bond issuer this year as well, according to market experts.
So far in FY26, ICICI Bank and Dhanlaxmi Bankhave been the only banks to tap the bond market, both raising funds via tier-II instruments. SBI’s tier-I bond issue, when it happens, will be the first for the current financial year.
Bond issuances likely to be tepid in FY26
Experts say the overall bond issuances through AT1 and tier-II are likely to be lower compared to last year due to a slowdown in credit growth. As such, AT-1 bonds are typically given by public sector banks, given their high trust factor due to sovereign backing. Initially popular with private banks as well, when introduced, issuances by private banks took a hit post the crash of Yes Bank in March 2020, which led to a write-down of such bonds and hit investor confidence for such paper issued by private sector lenders.
“FY2025 was a record year with ₹1.3 lakh crore of bond issuances. Within this, infrastructure bonds dominated issuances with a volume of over ₹90,000 crore,” said Anil Gupta, senior vice president & co-group head, financial sector ratings at Icra Ltd. “During the last decade, public sector banks accounted for around 60% of issuances, and private banks made up the remaining 40%. But last year, the share of issuance by private banks dropped significantly to just 7.0%.”
Gupta said that given the slowdown in credit growth, the bond issuances from banks are likely to moderate in FY26, and are likely to be dominated by public sector banks, while their private peers may focus on calibrating growth amid market conditions and elevated credit-deposit (CD) ratios. “As most banks are well capitalised, and their internal accruals are sufficient to meet growth requirements, the share of issuances of debt capital instruments like AT1 or tier-II is likely to remain muted in overall issuances,” he said.
AT1 bonds generally carry a higher coupon compared with tier-II bonds due to their elevated risk profile. AT1 bonds are also generally rated at least one notch below comparable tier-II issuances as these instruments can be written down.
PSU banks appear to be in no rush to tap the bond markets this year, even though several of them have already secured board approvals to raise funds, a routine annual process that doesn’t always translate into immediate issuances, said Venkatakrishnan Srinivasan, founder and managing partner of Rockfort Fincap LLP.
He said that not a single PSU bank has tapped the bond market so far in this financial year, in sharp contrast to the ₹39,000 crore they collectively raised during the same period last year.
“The reason for the delay is the prevailing surplus liquidity in the banking system. With credit of take still moderate and deposit flows remaining robust, banks are sitting on comfortable liquidity buffers and don’t feel the urgency to borrow. This is also reflected in the soft overnight rates and short-term money market yield,” said Srinivasan.
Preference for QIPs
He added that AT1 issuances continue to remain muted. Investor appetite for AT1s, which are perpetual in nature and carry loss-absorption features, including potential write-offs, has weakened significantly. This is largely due to earlier high-profile write-downs, both domestically and globally. These Basel III-compliant instruments now face credibility concerns, especially when the yields offered do not sufficiently compensate for the embedded risks.
In this context, several PSU banks may prefer to raise capital through QIPs. These equity issuances help improve capital adequacy and also align with the government’s disinvestment objectives by gradually diluting public sector ownership.
State-owned banks have been actively raising funds via QIPs to help the government meet a regulatory deadline for divestment of stake in state-owned entities
Punjab National Bank raised ₹5,000 crore via a QIP in September 2024, and Bank of Maharashtra fetched ₹3,500 crore the following month. This year, Indian Overseas Bank raised ₹1,436 crore via a QIP that ended on 25 March. UCO Bank, Punjab & Sind Bank, and Central Bank raised a total of about ₹2,000 crore from their QIPs in the last quarter of FY25.
