SBI to sell Tier II bonds to retail investors

Inaugurating its 1,111th branch in Assam, O P Bhatt, chairman, State Bank of India, said that for the first time in Indian banking history a bank has chosen to sell Tier II bonds to individual retail investors.

The minimum investment required in these bonds will be anywhere between Rs10,000 and Rs1 lakh. Tier II capital is raised by issuing bonds with maturity between 2 years and over 15 years.

The tenure of this paper from SBI, carry AAA / stable rating from Crisil, is expected to be 10 years. 

The yields on the 10-year government bonds has declined from around 8.6 per cent at the end of September to about 5.7 per cent at present. This will enable bank to save on costs by placing bonds at lower rates now. The bank plans to approach SEBI for permission to offer these bonds to the retail investor. The actual rate of interest will depend on the bond yield at the time of issue.

In mid-December, SBI had raised Rs2,500 crore through upper tier II bonds at a coupon rate of 8.9 per cent. The bank is now planning to raise up to Rs8,000 crore during the current financial year and the next financial year.

These bonds will be raised though unsecured and rated rupee Innovative Perpetual Debt Instruments/ Upper Tier-II/ Lower Tier-II Subordinated Debt by way of bonds and/or any other capital instruments that RBI may permit from time to time.

SBI is also expanding rapidly. In the North-East, the country's largest lender had opened 25 branches in the last financial year and 18 more this financial year so far. 44 more branches would be opened by the end of March.

The number of SBI ATMs would go up from the present 288 to 514 by the end of the current financial year. SBI also plans on absorb 500 new employees on 5th January 2009.