Business Daily from THE HINDU group of publications
Monday, Jan 05, 2009
ePaper | Mobile/PDA Version | Audio | Blogs
Business Daily from THE HINDU group of publications Monday, Jan 05, 2009 ePaper | Mobile/PDA Version | Audio | Blogs |
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Money & Banking
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Corporate Bonds
The coupon rate for SBI’s upper Tier-II bond for retail investors would be linked to the highest fixed deposit rates and could be re-priced every six months. Our Bureau Mumbai, Jan. 4 Public sector banks will be watching with keen interest State Bank of India’s move to raise long-term resources from retail investors by issuing upper Tier-II bonds of 15 years maturity. India’s biggest bank is planning to link the coupon rate on the bonds to the highest deposit rate offered on its fixed deposits. Depending on SBI’s experience i.e. success, other public sector banks may well follow suit. If SBI’s ‘experiment’ does not click, then other banks will desist from tapping the retail investors with this offering. “The coupon rate for SBI’s upper Tier-II bond for retail investors would be linked to the highest fixed deposit rates and could be re-priced every six months. If deposit rates move up after six months, the coupon rate for the bond too could go up. Similarly, if deposit rates go down, the coupon rate could go down too,” said a senior SBI official. SBI had adopted this procedure when it had tapped retail investors with a similar issue in 1994 and is likely to do so this time as well, the official added. SBI Bank is hopeful of getting a good response given the current uncertainty of the interest rate scenario. The ticket size would be Rs 10,000 so as to enable a large number of retail investors to subscribe to the issue. Considering SBI’s phenomenal reach, the bond issue could generate interest among retail investors and mobilise resources for the bank. The move to mobilise retail resources by SBI is an effort on its part to broad-base its liability and spread it across different segments, said Mr B. Prasanna, Managing Director and CEO, ICICI Securities Primary Dealership Ltd. According to a senior official from Union Bank of India, the response to the issue would depend on the coupon rate set by SBI. But with interest rates on bank fixed deposit rates coming down, retail investors could be interested in the issue, because of the interest rate differential. “Also, a bank FD is usually not more than five years. But here the bond is for 15 years with an option to increase the interest rate after 10 years,” he said. A senior Bank of India official said retail investors’ response to SBI’s offering would decide if other banks want to take the plunge or not. So, in that respect, the bond issue will be keenly followed. SBI to raise Rs 18,000 cr More Stories on : Corporate Bonds | State Bank of India
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