SBI to issue Rs5,000 crore retail bonds
30 May 2005
30 May 2005
The State Bank of India (SBI) is planning to float Rs5,000 crore worth
of 10-year bonds for retail customers. This is the largest domestic retail
bond issued by any Indian bank.
The plan is to convert part of the bank's term deposits into this long-term instrument. The SBI now offers 6.25 per cent on a five-year deposit and said the bond could offer 1 percentage point more than this.
An SBI executive said: "We will offer a higher interest rate on the bond. The exact rate is being worked out."
The bonds, to be distributed across the country by the 13,000-odd branches of the bank and its seven associates, will be treated as subordinate debt and prop up the bank's capital adequacy ratio.
"We need to raise subordinated debt for 'tier II' capital. Internally, the debate is whether to float an overseas bond or go for a domestic issue. We have decided to reward our domestic depositors on the bank's 200th year," said the executive.
Prime minister Manmohan Singh and finance minister P Chidambaram will inaugurate the year-long celebrations for the bank's 200th year on June 14 in Mumbai.
SBI had earlier floated Rs3,400 crore worth of long-term bonds in three tranches and part of it will come for redemption this year. The bank will ask the holders of these bonds to switch to the new instrument.
Besides, existing depositors will also be asked to subscribe to the instrument, which will offer better rates than term deposits. SBI Capital Markets, the bank's merchant banking wing, will manage the bond issue.
of deposits is becoming an issue for the banking industry as the credit growth
has been very high. The bond can be an answer to this a sure way of
garnering long term money," pointed out a banking analyst.
State Bank's average cost of money is 5.11 per cent. If one excludes the Indian Millennium Deposit, which is due for redemption later this year, the cost will come down to 4.7 per cent. The average yield on advances is 7.68 per cent and that of investment is 7.94 per cent. The bank has been able to raise its net interest margin (NIM) from 3.04 per cent to 3.39 per cent last year.