Archive · 13 Nov 2025
Banks Plan Rs 15,000 Crore Tier II Bond Issuance Amidst High Demand
Imagine banks need to be strong and have enough money to lend to people and businesses.
One way they can get this money is by selling special IOUs called Tier II bonds.
These bonds are like loans that the bank promises to pay back over a long time, usually at least five years.
Right now, many banks are planning to sell these bonds to get about Rs 15,000 crore by the end of the year.
They are doing this because investors really want to buy these long-term loans, especially since interest rates might go down soon.
Also, some banks need to replace old loans they previously took out.
Even though banks usually get money from people's savings accounts, these bonds help them get extra money to support their business.
Some experts believe banks don't really need to do this as much because they have enough money already, but the market conditions are good for selling these bonds now.
Banks are poised to raise up to Rs 15,000 crore through Tier II bonds by December to strengthen their capital base.
The total expected mobilization via Tier II bonds for the current financial year is around Rs 25,000 crore, with nearly Rs 10,000 crore already raised.
Key drivers for increased Tier II bond issuances include high investor demand for long-duration debt, anticipation of repo rate cuts, and regulatory investment needs.
SBI recently raised Rs 7,500 crore through Tier II bonds at a 6.93% interest rate over 10 years, setting a benchmark for other banks.
While banks can fund growth through deposits, Tier II bonds offer a way to raise long-term capital efficiently without diluting equity, especially when market conditions are favorable.
- Who
- Several banks in India, including SBI and ICICI Bank
- What
- Are planning to raise funds through Tier II bonds, debt instruments to boost capital base.
- When
- Expected by the end of December and throughout the current financial year, with significant activity anticipated before the December monetary policy.
- Where
- India
- Why
- Driven by strong demand for long-duration papers, expectations of repo rate cuts, regulatory investment requirements, and a scarcity of top-rated long-tenor bonds.
Drivers of Tier II Bond Issuance
Skepticism on Necessity
Primary Motivation for Issuance
Drivers of Tier II Bond Issuance
Demand for long-duration papers, anticipation of repo rate cuts, and regulatory investment requirements are driving banks to issue Tier II bonds. The scarcity of top-rated long-tenor bonds and the need to refinance older bonds also contribute.
Skepticism on Necessity
Indian banks do not primarily rely on Tier II bonds for growth or capital adequacy as they are largely deposit-funded and possess sufficient internal capital buffers to meet regulatory requirements.
Timing of Issuance
Drivers of Tier II Bond Issuance
Stable market conditions, high investor appetite, and attractive yields make it strategically advantageous for banks to raise capital now rather than risk uncertain pricing later in the fiscal year.
Skepticism on Necessity
Future issuances of Tier II bonds will be contingent on market opportunities, suggesting it's not a consistent or universally necessary funding method.
- Expected Tier II Bond Mobilisation (FY)
- Around Rs 25,000 crore
- Amount Raised So Far (FY)
- Nearly Rs 10,000 crore
- Expected Tier II Bond Issuance (by December)
- Up to Rs 15,000 crore
- SBI Tier II Bond Raise
- Rs 7,500 crore at 6.93% over 10 years
- ICICI Bank Tier II Bond Raise
- Rs 1,000 crore
- Minimum Tier II Bond Period
- Five years
- Previous Financial Year Tier II Raise
- Close to Rs 31,000 crore
