SBI, associate banks struck bond deals before merger

MUMBAI | KOLKATA: The country's largest lender State Bank of India and its four associate banks have struck bond deals a few days before they were officially merged, a move that has kept the markets guessing on the nature of the deal.

State Bank of Mysore, State Bank of Travancore, State Bank of Patiala and State Bank of Hyderabad have collectively sold about Rs 2,365 worth of additional tier-1, or perpetual bonds, to their parent SBI, in the last week of March helping them shore up capital ratios ahead of the largest merger in the banking space.

Two senior SBI officials confirmed the development.

The bank bought these bonds sold by its associates anticipating higher provisioning for bad loans in the merged entity . This may have helped it take a lesser hit in its profit & loss account.



The bonds were extinguished on April 1, when SBI merged its associate banks with itself. “This assumed importance, especially in the wake of rising stressed assets and requirement of banks to comply with Basel III norms by March 2019,“ said Arijit Chakraborty ,a chartered accountant.

Additional tier-I, or perpetual bonds, do not have permanent maturity. Proceeds from such fundraising helps a bank improve its equity capital. SBI did not, however, respond to ET's email seeking comments on the matter.

“But the move has assisted in bolstering the capital base of those small loss-making banks which saw stress on their capital adequacy due to losses amid rising sticky loans,“ said a senior SBI official.