India’s largest lender State Bank of India (SBI) announced on September 3, 2021 that it has raised Rs 4,000 crore through additional Tier 1 (AT1) bonds.

• AT1 bonds were raised at a coupon rate of 7.72%.
• It the first such issuance in domestic market after the Securities and Exchange Board of India (SEBI) notified new rules.
• SBI has AAA credit rating from local credit agencies while the AT1 offering is rated AA+. This is the highest rating in India for such instruments.
• SBI was also the first lender to raise capital through offshore AT1 Bonds in 2016.
• The latest issuance by SBI has encouraged other lenders such as Axis Bank to look after the offshore AT1 bond issue in order to raise about $1 billion.

Axis Bank will use these proceeds for green and social projects. It has set an initial price guidance of 4.4% for the bonds. Axis Bank became the second Indian lender in 2021 to tap overseas debt markets to raise funds using AT1 Bonds. HDFC Bank also raised $1 billion, recently.

SEBI amended the 100-year valuation rule for perpetual bonds, in March 2021. As per new rules, deemed residual maturity period of Basel III AT-1 bonds will be 10 years until March 31, 2022. This period will be increased to 20 and 30 years in subsequent six-month period. According to new rule, from April 2023, residual maturity of AT-1 bonds will become 100 years from the date of issuance of these bonds.

AT1 bonds are also called perpetual bonds. They carry no maturity date but are having a call option. The issuer of these bonds may call or redeem the bonds in case it is getting money at a cheaper rate, especially when interest rates are decreasing.