Why has SBI raised Rs.2500 crore and why is the coupon rate so high at 7.7%?

You are right that SBI has raised Rs.2500 crore via the issue of bonds to fund its business growth in the coming months. This is part of a much larger fund raising that SBI has planned to constantly beef up its capital base in tune with credit growth.

It needs to be noted that this bond issue is in the nature of Basel approved AT1 bonds which are perpetual in nature. The AT1 bonds came under a lot of fire after Yes bank had repudiated bonds worth Rs.8500 crore as part of the rescue plan.

Despite all the risks, investors are a lot more confident of AT1 bonds issued by an SBI considering its government backing and its pedigree. These bonds command relatively higher coupon of 7.73%, which is high for a blue-chip borrower. But that is because it is perpetual and also more unsecured than other bonds.

It may also be noted that these AT1 bonds do not have any specific maturity and only entail the payment of timely interest each year at the stipulated rate of interest. However, it should be noted that SBI has been given a call option to call back the bonds after 5 years.