Four States lap up 90% of SBI's retail bond issue

Do investors from Maharashtra, Gujarat, Delhi, and Rajasthan have more disposable income? Do they know a thing or two more about how to make their money work better than their compatriots in the rest of the country? Subscription to State Bank of India's retail bond issue last month seems to suggest so.

The aforementioned States accounted for about 90 per cent of the total subscription to the retail bond issue. India's largest bank retained Rs 5,497 crore of the total subscription of Rs 8,427 crore.

Savvy investors

Thanks in no small measure to money poured by Mumbai investors, nearly half of the subscription amount came from Maharashtra. The Gujarat Circle and Delhi Circle, which include Rajasthan, followed next, accounting for about 20 per cent each of the total subscription. Rest of the country accounted for just 10 per cent of the total subscription.

What this means is that savvy investors from these two Western and two Northern States have grabbed the opportunity to earn high returns — for retail investors: 9.75 per cent interest on 10-year bonds and 9.95 per cent on 15-year bonds; for non-retail investors: 9.30 per cent on 10-year bonds and 9.45 per cent on 15-year bonds — being offered by SBI, said a senior official.

Besides having the wherewithal, analysts attribute this investment trend to people from these four States being well-versed with the functioning of the financial markets; being well-informed about investment opportunities; and having dematerialised (demat) accounts for making investments in equity and debt markets.

India is grossly underserved when it comes to financial services. This is underscored by the fact that though the country has a population of about 120 crore, the number of investor accounts with the two depositories, National Securities Depository Ltd and Central Depository Services (India) Ltd are just 1.15 crore and 74.75 lakh, respectively. The number of deposit accounts, as per the latest RBI data, with banks was around 66 crore in 2009.

A vast swathe of the country is a virgin market for financial intermediaries, be they banks, mutual funds, or broking firms. If they embrace the ‘Blue Ocean Strategy' (create new demand in an uncontested market space to generate growth and profit) by making concerted efforts to educate potential investors about investments and bring them into the mainstream, rest of India presents a huge opportunity to market financial services, said an investment banker.

Demat accountholders

Since they are tradable on stock exchanges, SBI restricted subscription to the retail bonds to demat accountholders only. Experience of issuers who issued long-tenure bonds in the physical format in the past shows that investors had a plethora of complaints ranging from bond certificates getting defaced/ lost in transit/misplaced. These problems are eliminated with a demat account.

A break-up of the allotment of SBI's retail bonds shows that though the minimum investment was Rs 10,000 (the face value), the average investment by retail investors was over 20 times at Rs 2.24 lakh. High net worth individuals and non-individual investors (corporate and Qualified Institutional Bidders), on an average, invested about Rs 64 lakh and around Rs 1 crore, respectively.

COMMENT NOW