sbi bonds,State Bank of India,long-term bonds of 10 and 15 years duration to retail investors.

The country's largest bank, the State Bank of India, on Friday said it will raise Rs 1,000 crore by issuing long-term bonds of 10 and 15 years duration to retail investors.


This is the first time that a bank is issuing Tier II bonds to retail investors. Usually, such bonds are privately placed with institutional investors. The issue will open on October 18 and close on 25.

Having a face value of Rs 10,000, the bonds will be issued in two series — Series I will be of 10 years duration and carry a coupon rate of 9.25 per cent and Series II will be of 15 years duration and carry a coupon rate of 9.50 per cent. Interest is payable annually. Interest on the bonds will be subject to tax at the normal rates of tax.

Call option
The bank can exercise a call option (where the bank can recall the bonds) after 5 years for Series I, and after 10 years for Series II. If the call option is not exercised, then in both cases, the step up coupon rate is 0.5 per cent. The minimum application amount is Rs 10,000 and in multiples of Rs 10,000, thereafter.

Speaking about the bond issue, Mr O. P. Bhatt, Chairman, SBI, said it would not only give depositors an additional investment avenue, but also help the bank address the problem of asset liability mismatch.

“From a long term liquidity perspective, retail bonds can be an excellent product for us to have. Close to 50 per cent of our deposits are low cost deposits (Current Account Savings Account) and 90 per cent of that is less than one year. Given the growth in infrastructure and home loans, our term lending is in excess of 50 per cent of our loan assets. Therefore, mopping up long term funds has become important. Also, going ahead, under Basel III banks need to get specific long term liquidity,” Mr Bhatt said.

Of the total issue, 50 per cent is reserved for retail customers (investment of up to Rs 5 lakh), 25 per cent is reserved for High Networth Individuals and 25 per cent for institutional investors.

“This being the first retail bond issue, we have kept the coupon rate high. Also, there is an upward bias in the interest rate scenario and we wanted to factor this in for our investors,” Mr Bhatt said.

If the maiden bond issue is successful, the bank may have similar issuances once every quarter. The subsequent pricing will depend on market conditions, Mr Bhatt said.

SBI is proposing to list the bonds on the National Stock Exchange. The bank is also planning to put in place a market-making mechanism for the bonds whereby its primary dealership subsidiary

SBI-DFHI will provide two-way buy/sell quotes. Market-making is aimed at imparting liquidity to the bonds in the secondary market. In this regard, the bank is working on a couple of regulatory issues and would sort it out.

Subscribers would be allotted on a first-come-first basis. For those who get partial allotment the bank will pay an interest of 6 per cent, and for those who do not get any allotment, it will pay an interest of 4 per cent, said Mr Ranjan, Chief Financial Officer, SBI.

Recently, institutions like IFCI Ltd, IDFC and L&T Infra, announced retail tax-saving infrastructure bonds, offering coupons ranging between 7.5 and 8 per cent

SBI Series 1 and Series 2 Lower Tier II Bonds - Good investmentoption with a high interest rate and it's going to be listed too.

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