State Bank of India's perpetual bond sale attracted strong institutional demand, setting a benchmark for other lenders to issue AT1 paper as oil and Treasury yields pressure Indian bonds.
State Bank of India's successful sale of perpetual bonds has cleared a path for other lenders to tap the same market. The deal, which drew strong demand from institutional investors, signals that buyers are willing to absorb Additional Tier 1 (AT1) paper even as global yields climb, several bankers said.
Perpetual bonds let banks bolster capital without diluting equity. SBI's reception suggests the market can absorb similar offerings from peers, many of which face call options on existing AT1 bonds this fiscal year. If they follow SBI's lead, fresh issuance could help banks meet regulatory capital requirements tied to credit growth.
The offering comes at a tense moment for Indian fixed income. Government bonds posted their first monthly loss in four months, hit by surging crude oil prices and a selloff in U.S. Treasuries. Brent crude has risen above $90 a barrel, stoking inflation fears and pushing global yields higher. That has raised funding costs for Indian banks, making perpetual bonds an attractive way to lock in capital at relatively fixed terms.
Among the lenders that could test the market next is HDFC Bank (HDB). Its Alpha Score of 38 out of 100, labeled Mixed, reflects a capital position that may benefit from the demonstrated appetite for AT1 paper. The bank's own issuance would be closely watched given its size and retail deposit base. On the other hand, Infosys (INFY), a technology firm with a Moderate Alpha Score of 57, is less directly affected by the bond market read-through, the banking sector remains the primary beneficiary.
Several mid-sized lenders are expected to announce perpetual bond offerings in the coming months, following SBI's blueprint. If they succeed, the additional capital could support loan growth at a time when the Reserve Bank of India is urging banks to strengthen buffers. The institutional demand for SBI's bonds, which included pension funds and insurance companies, shows that the investor base is deep enough to absorb more supply.
Traders said the key risk is that further rises in oil or U.S. Treasury yields could widen credit spreads, making AT1 issuance more expensive. For now, SBI has set a benchmark that others can use to price their own deals.
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