MUMBAI, July 31: Strong investor demand for State Bank of India (SBI) perpetual bonds is expected to encourage more Indian banks to tap the market through similar issuances in the coming months, according to merchant bankers and debt market experts.
The country’s largest state-owned lender recently raised ₹46.91 billion by issuing Basel III-compliant Additional Tier I (AT-1) perpetual bonds with a five-year call option. The successful fundraising has strengthened confidence in the market at a time when several banks are preparing for upcoming call options on their existing perpetual bond issuances.
SBI Perpetual Bond Issue Attracts Strong Investor Interest
The bond issue received bids worth more than ₹60 billion, indicating healthy participation from institutional investors despite recent market volatility. According to Reuters, the securities attracted investments from provident funds, pension funds, mutual funds and some banks.
SBI will pay an annual coupon of 7.75% on the bonds. Market participants believe the pricing achieved by the lender could serve as an important benchmark for future AT-1 bond issuances by other financial institutions.
Experts Expect More Banks to Enter the Market
Debt market experts said the successful fundraising demonstrates continued investor appetite for perpetual bonds and may encourage other lenders to evaluate similar capital-raising plans during the current financial year.
“A successful SBI issuance could provide an important pricing benchmark and encourage other banks to evaluate AT-1 issuances during the year,” said Saurav Ghosh, co-founder of online debt trading platform Jiraaf.
Ghosh said banks are expected to continue strengthening their capital buffers to support future credit growth and balance-sheet expansion, making perpetual bond issuances an important funding option.
Why Perpetual Bonds Matter for Banks
Perpetual bonds are debt instruments that do not have a fixed maturity date. However, most issuances include a call option that allows investors to exit after a specified period, commonly five years.
These instruments form part of a bank’s regulatory capital under Basel III norms and are widely used to improve capital adequacy while supporting lending activity and long-term business growth.
Market Sees Pricing as Positive Signal
According to Venkatakrishnan Srinivasan, founder and managing partner of debt advisory firm Rockfort Fincap, SBI’s pricing broadly matched prevailing market expectations and reflected resilient institutional demand across different categories of investors.
Banks Face Upcoming Call Options on Existing Bonds
The strong response to SBI’s fundraising comes at a time when several large public sector banks are approaching scheduled call options on their outstanding perpetual bonds. Market participants believe this could create fresh opportunities for lenders to refinance existing capital instruments with new issuances.
According to Reuters, five major state-run banks have perpetual bonds worth approximately ₹307 billion that become eligible for call options over the next eight months of the current financial year.
Among them, State Bank of India has perpetual bonds worth ₹140 billion reaching the call-option stage. Union Bank of India has bonds worth ₹60 billion, while Canara Bank has ₹40 billion due for investor exit options.
Punjab National Bank and Bank of Baroda also have perpetual bonds with combined outstanding value of around ₹67 billion that are scheduled to reach their call-option dates later this financial year.
Capital Raising Expected to Support Growth
Bankers believe many lenders may choose to issue fresh AT-1 perpetual bonds as they manage regulatory capital requirements and prepare for future lending demand. Replacing callable bonds with new issuances can help banks maintain healthy capital buffers while supporting business expansion.
The successful SBI transaction has also provided the market with a fresh pricing reference, which could assist banks in planning future fund-raising exercises depending on market conditions and investor appetite.
Conclusion
The strong institutional response to SBI’s perpetual bond issue has reinforced confidence in India’s AT-1 bond market. With several public sector banks approaching call-option dates on existing issuances, market participants expect more lenders to consider raising fresh perpetual capital during the current financial year as they seek to strengthen their balance sheets and support future credit growth.
Source: Reuters
