MUMBAI: The nation’s largest lender State Bank of India (SBI) has deferred its Rs 15,000-crore domestic bond issuance—a mix of tier 1 bonds and long-term infra bonds--plan due to high bond yields, despite the rate cut by the central bank.
The bank has also decided to re-look at the funding strategy for the reminder of the current fiscal and look afresh at the funding plans next fiscal. This comes despite the fact that many other state-run banks have raised funds in recent months.
The move has baffled the market and pulled down its stock by almost 1% on Monday as it comes in spite of the fact that the RBI has cut policy rates by 25 bps to 6.25% and also has been infusing ample liquidity into the system. The SBI stock is trading down 21% from the peak it had scaled in last June.
SBI had initially planned to raise around Rs 15,000 crore -- Rs 5,000 crore in Basel III-compliant additional tier-I perpetual bonds and Rs 10,000 crore via 15-year infrastructure bonds this month--through domestic bond sales before the end of March. However, due to persistently high yields, the bank has postponed the plans.
"SBI has been waiting for the right time to tap the debt market, but has abandoned the plan for the current fiscal as yields have staying high for the last several weeks. So the Rs 15,000-crore of planned bond sale is off its shelves now,” a merchant banker old TNIE on Monday.
Despite the rate cuts and heavy liquidity infusion of trillions of rupees by the RBI, yields on AAA-rated 10-year corporate bonds have risen by 15 bps since early February.
This unfavorable market condition has led the bank to reassess its asset-liability position and defer the bond issuance despite having board approvals in place, the source said.
SBI had planned fundraising included Rs 5,000 crore through Basel III-compliant additional tier-I perpetual bonds and Rs 10,000 crore via 15-year infrastructure bonds this month. The bank had in October raised Rs 5,000 crore at 7.98% in through a perpetual bond issuance.
However, other state-run banks such as Bank of India, Punjab National Bank, and Bank of Maharashtra have managed to raise Rs 7,252 crore in infrastructure bonds in February, though this was just over half of their intended target.
It is expected that SBI will relook at its funding needs, keeping a close watch on bond market conditions. With yields still elevated, the bank's cautious approach highlights the broader challenges faced by financial institutions in the current interest rate environment.
The SBI counter closed 70 bps down at Rs 722.45 on the BSE on Monday. The shares of the largest lender is now 21% away from its 52-week high of Rs 912.10, hit in June 2024. The stock has been flat in the last one year. Moreover, it has added 5% in March so far after three straight months of losses. The stock fell 11% in February, almost 3% in January and over 5% in December.