SBI to become first bank to offer Tier II bonds to retail investors
16 Oct 2010
State Bank of India, the country's largest lender,decision to raise Rs1,000 crore by issuing long-term bonds of 10 and 15 years duration 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.
The bank can exercise a call option (where the bank can recall the bonds) after five 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 Rs10,000 and in multiples of Rs10,000, thereafter.
Speaking about the bond issue, SBI chairman O P Bhatt 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 accounts and savings accounts), 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,'' Bhatt said.
Of the total issue, 50 per cent is reserved for retail customers (investment of up to Rs5 lakh), 25 per cent is reserved for high net worth 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,'' Bhatt said.
