State Bank of India (SBI) has priced one of the riskiest bank capital securities at a record-low coupon, in the latest sign that investors are confident policymakers’ stimulus steps will help large issuers whether the pandemic. The biggest bank of India will sell Rs Rs 4000 crore ($545 million) of the so-called Additional Tier 1 bonds at a coupon of 7.74 per cent. That is the lowest pricing on such debt, which can be entirely written down in a crisis, issued by any lender since the country started implementing the stringent Basel III capital rules in 2013. Unprecedented stimulus steps from the authorities in India have reduced average borrowing costs in the local credit market to the cheapest in more than a decade. The measures have also given investors confidence that the country’s lenders will be able to beef up capital ratios in anticipation of more soured loans as the coronavirus batters businesses and leaves millions jobless. Indian lenders still face serious challenges. They were already saddled with the world’s worst bad debt pile, and the pandemic is threatening to worsen creditworthiness at many borrowers. That environment makes the risks of AT1s more real. The authorities moved in March to seize beleaguered Yes Bank Ltd. and announced an unprecedented move to permanently write down its AT1 securities.

While SBI has AAA credit scores from local credit companies, its AT1 offering is rated AA+ and can be called back by the lender after five years or any year after that. SBI Capital Markets Ltd. is solely managing the issuance, the person said, asking not to be identified as the details are private.