Public Sector Bank Bonds in India 2026

Public Sector Bank Bonds are bonds issued by banks where the Government of India holds the majority ownership. The list includes State Bank of India (SBI), Bank of Baroda, Punjab National Bank, Canara Bank, Bank of India, Union Bank, and a few smaller nationalized banks.

These banks issue bonds to raise capital for their lending business and to meet the RBI's Basel III regulatory requirements. The bonds sit in two main categories: Tier 1 (perpetual / AT1) and Tier 2 (subordinated, fixed tenure). Each category has its own risk and return features.

What are PSU Bank Bonds?

PSU bank bonds are debt instruments issued by India's nationalized banks. Most are unsecured but rank above equity in the bank's capital structure. When you buy one, you lend money to the bank for the bond's tenure. The bank pays a fixed coupon over that period, and the principal returns at maturity (or stays invested in the case of perpetual bonds, until the bank exercises a call option).

The bonds are part of the bank's regulatory capital, which is why they have specific features that ordinary corporate bonds don't have.

PSU Bank Tier 1 Bonds (Perpetual/AT1) Tier 1 bonds, also called Additional Tier 1 (AT1) or perpetual bonds, have no fixed maturity date. The bank pays the coupon as long as it stays viable.

Key features:

• No fixed maturity. The bond can stay outstanding for as long as the bank doesn't call it.
• Call option. The bank can redeem the bond after 5 or 10 years from issue, subject to RBI approval.
• Coupon discretion. The bank can skip coupon payment in distress without triggering a default.
• Loss absorption. At the point of non-viability (PONV), the bond can be written down or converted to equity.

These features make AT1 bonds higher-risk than ordinary debt. To compensate, they pay higher coupons. SBI perpetual bonds and BoB AT1 bonds yield typically run 100 to 150 basis points above the 10-year government bond.

Tier 2 Bonds: Tier 2 bonds have a fixed tenure (usually 10 years) and rank above AT1 in the bank's capital stack. The bank cannot skip coupons on Tier 2 unless specific stress conditions are triggered. These bonds rank below depositors and senior creditors, so they pay slightly less than AT1 bonds of the same issuer.

Examples of PSU Bank Issues

Issuer	Type	Typical Coupon (subject to changes)	Tenure
State Bank of India	AT1 / Tier 2	7.5% to 9.5%	Perpetual / 10Y
Bank of Baroda	AT1 / Tier 2	7.7% to 9.2%	Perpetual / 10Y
Punjab National Bank	AT1 / Tier 2	7.8% to 9.5%	Perpetual / 10Y
Canara Bank	AT1 / Tier 2	7.6% to 9.0%	Perpetual / 10Y

The exact yield depends on the bond's call date (for AT1) or remaining maturity and the current market interest rate. GoldenPi shows live yield-to-call and yield-to-maturity for each listed bond.

A Simple Example

Suppose you buy a Rs. 1,000,000 face value. Bank of Baroda Tier 2 bond paying 8% per year, with 5 years left to maturity. Annual interest is Rs. 80,000. Over 5 years, the total interest comes to Rs. 400,000. At maturity, your Rs. 1,000,000 principal returns.

If you bought the same bond at a discount (say Rs. 980,000), you also pick up a Rs. 20,000 capital gain at maturity. Your overall yield-to-maturity would be higher than the 8% coupon.

Risks to Understand:

Four risks to know about nationalized bank debt:

1. Coupon skip risk (AT1). The bank can skip the coupon on perpetual bonds without triggering default. 
2. Write-down risk (AT1). At a point of non-viability, the bond can be partially or fully written off. The Yes Bank AT1 write-off in March 2020 is the most discussed case in India.
3. Interest rate risk. Long-tenure and perpetual bonds are sensitive to market interest rate moves. The resale price can fall when rates rise.
4. Liquidity risk. Some AT1 bonds trade thinly. Selling before the call date may not happen at the price you want.

How to Invest in GoldenPi

GoldenPi is a SEBI-registered Online Bond Platform Provider. The steps:

1. Log in to your KYC-verified account.
2. Open the Public Sector Bank Bonds section.
3. Filter by issuer, tier type, yield, call date, or maturity.
4. Read the offer document carefully, especially the coupon discretion and write-down clauses.
5. Pay through NEFT or RTGS from your bank account.
6. The bond enters your demat after settlement.

Taxation

Interest is added to your total income and taxed at your slab rate. Once annual interest from one issuer crosses Rs. 10,000, TDS at 10% applies to listed corporate bonds under Section 193 of the Income Tax Act.

Bonds sold within 12 months are taxed at slab. Beyond 12 months, the long-term capital gain on a listed bond is taxed at 12.5% without indexation under the Finance (No. 2) Act, 2024.

Conclusion:

Bonds from public sector banks let investors put money into debt from India's largest nationalized lenders. The yields are higher than central government bonds because of credit risk and structural features, especially for AT1 perpetual bonds. The credit rating, the tier classification, and the specific features in the offer document (coupon discretion, call option, write-down clause) all matter.

For investors who understand the structures, this category offers a higher coupon than plain government securities. The Yes Bank AT1 write-off in 2020 showed why the offer document needs careful reading.

GoldenPi keeps the listings updated. Live yields, call dates, and tier classification reflect the latest disclosures from each issuer.