Global rating agency Standard & Poor's on Monday assigned its 'BB' rating indicating non-investment or junk grade to the State Bank of India's [Get Quote] proposed $225 million (Rs 900 crore) Hybrid Tier I perpetual bonds.

The bonds would be issued under $5 billion (Rs 20,000 crore approx) Medium Term Notes programme, Standard & Poor's said in a statement.

The proposed bonds would be perpetual notes with a call option 10 years from the date of issue, it said.

The rating differential between the 'BBB-' counter-party credit rating and the 'BB' rating on the Hybrid Tier I notes reflects the junior subordinated nature of the notes and the embedded interest deferral feature, it said.

This interest deferral feature is linked to compliance with the regulatory capital adequacy ratio (RCAR) and a profit test. If SBI's RCAR is below the minimum regulatory requirement stipulated by the Reserve Bank, it would be mandatory to skip interest payments, it said.

As of March 31, the bank's RCAR stood at 12.34 per cent compared with the minimum regulatory requirement of 9 per cent.

If the bank is in compliance with RCAR but reports a 'net loss,' it would require RBI's permission before it can make interest payments on the notes. A 'net loss' is defined as a negative balance in the 'balance in profit and loss account,' which is a component of the reserves and surplus on the bank's balance sheet.