SBI’s Innovative Funding Strategy: Raises Rs 3,717 Crore Through Additional Tier-1 Bonds.
Shares of State Bank of India (SBI) were under scrutiny after the bank announced it had raised Rs 3,717 crore via the issuance of its third set of Basel III Extra Tier 1 bonds in the present financial year at a coupon rate of 8.25 per cent. Brokers are optimistic about the stock, with some putting a price target of Rs. 750 on the state lender's shares (a 33.92 per cent increase from today's trading price).
SBI’s Innovative Funding Strategy: Raises Rs 3,717 crore through Additional Tier-1 Bonds.
State Bank of India (SBI) is the largest public sector bank in India, with a market share of over 22% in terms of total assets. The bank has a widespread network of over 22,000 branches across the country and a customer base of over 430 million.
The bank recently disclosed that it has issued its third Basel III Additional Tier 1 (AT1) bond in the current fiscal year, with a coupon rate of 8.25 per cent, raising Rs 3,717 crore. The announcement has put the spotlight on the shares of SBI, with many brokerages being optimistic about the outlook of the stock and pegging the price target at Rs 750, an upside of 33.92% to the current market price.
Shares of State Bank of India (SBI) were under scrutiny after the bank announced it had raised Rs 3,717 crore via the issuance of its third set of Basel III Extra Tier 1 bonds in the present financial year at a coupon rate of 8.25 per cent. Brokers are optimistic about the stock, with some putting a price target of Rs. 750 on the state lender’s shares (a 33.92 per cent increase from today’s trading price).
SBI shares increased little today to Rs 565.90 from their last BSE closing of Rs 564.80. They after that dropped 0.76% to Rs 560.50 on the BSE. After three days of gains, the stock dropped.
The stock has gained 24.06 per cent in a year and is down 8.58 per cent since the start of this year. The bank’s market capitalization on the BSE was Rs 5 lakh crore. The total value of shares bought and sold on the BSE was Rs 15.85 crore, with 2.82 lakhs traded.
Technically speaking, SBI’s relative strength index (RSI) is 60.1, indicating that the stock is neither overbought nor oversold. The one-year beta of SBI stock is 1.1, which indicates that it will undergo extremely high volatility. SBI shares are trading above the five-day, twenty-day, and two-hundred-day moving averages but below the fifty-day and one-hundred-day moving averages.
The lender will use the bond proceeds to boost Additional Tier 1 Capital, overall capital base, and capital adequacy. A call option is available on these perpetual bonds after ten years and on each anniversary after that.
What are Basel III Additional Tier 1 bonds?
Basel III norms are a set of guidelines that regulate the capital adequacy of banks globally. They aim to strengthen the banking sector by making it more resilient to financial shocks. One of the key requirements of Basel III norms is the introduction of Additional Tier 1 (AT1) capital.
AT1 bonds are hybrid securities that can be used to raise capital for banks. They are perpetual in nature, meaning they have no maturity date, and the interest paid on them is discretionary. In case of a financial crisis, the bank can write down the value of the AT1 bonds or convert them into equity, thereby absorbing losses.
SBI’s Third Basel III AT1 Bond Issuance.
SBI’s recent issuance of Basel III AT1 bonds is its third such issuance in the current financial year. The bank raised Rs 2,100 crore in September 2022 and Rs 2,500 crore in November 2022 through the issuance of similar bonds.
The recent issuance of Rs 3,717 crore takes the total amount raised by the bank through the issuance of Basel III AT1 bonds in the current financial year to Rs 8,317 crore. The coupon rate of 8.25% is higher than the coupon rate of 7.72% and 8.45% for the September and November issuances, respectively.
What Does This Mean For SBI?
The successful issuance of Basel III AT1 bonds is a positive development for SBI as it strengthens the bank’s capital adequacy ratio (CAR). The CAR is a measure of a bank’s ability to absorb losses and is calculated as the ratio of a bank’s capital to its risk-weighted assets.
Basel III norms require banks to maintain a minimum CAR of 11.5%. SBI’s CAR stood at 12.99% as of December 2022, well above the minimum requirement. However, the issuance of AT1 bonds provides additional cushion to the CAR and enhances the bank’s ability to absorb losses.
Take a peek at what the brokerages had to say about the stock’s future.
On March 2, Axis Securities set a target price of Rs 750 for the upcoming months, noting that the state-run lender’s primary worries going forward include a slower-than-anticipated recovery cycle and a slowdown in lending growth. At the time, the stock’s price was Rs. 537.9, suggesting a 40% increase from that point.
Kotak Institutional Equities has issued a “Buy” recommendation for the stock and set its fair value at Rs 725. The “Buy” call on Sharekhan by BNP Paribas has a target price of Rs 710.
We have enhanced our profit expectations for FY2023E/24E, the corporation claims, taking into account improved margins.
Motilal Oswal Financial Services has issued a buy recommendation for SBI stock and set a price objective of Rs 625 for the stock.
“Strong loan growth, margin expansion, and decreased provisions have all contributed to SBI’s outstanding performance. Core PPOP experienced a remarkable increase due to the company’s improved treasury and managed operating expenses.
Notwithstanding the possibility of a slight increase in deposit costs, the high mix of floating loans, which will benefit from loan re-pricing, will continue to enhance the NII and overall profitability, “the financial services company declared.
Brokerages’ outlook on SBI.
The successful issuance of Basel III AT1 bonds has led many brokerages to be optimistic about the outlook of SBI. Brokerages such as Motilal Oswal, ICICI Direct, and HDFC Securities have assigned a buy rating to the stock and have pegged the price target at Rs 750, an upside of 33.92% to the current market price.
The bullish outlook is based on several factors, such as the bank’s strong capital position, improving asset quality, and favourable macroeconomic conditions.
The successful issuance of Basel III AT1 bonds is a positive development for SBI as it strengthens the bank’s capital position and enhances its ability to absorb losses.
The outlook for the stock is positive, with many brokerages assigning a buy rating and pegging the price target at Rs 750. Investors looking to invest in the banking sector may consider SBI as a viable option, given its strong fundamentals and favourable outlook.
Edited by Prakriti Arora