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State Bank of India is planning to tap retail investors every quarter with bond issues for mobilising long-term resources.
India's biggest lender had raised Rs 1,000 crore through its maiden issue of retail bonds in the last quarter. In the current quarter, it is seeking to mobilise about Rs 10,000 crore through these bonds.
The latest offering of the bonds (also called Lower Tier II bonds) will be open from February 21 to 28.
“Our maiden issue of retail bonds got subscribed 19 times in the last quarter (October). We are now coming out with another issue in the current quarter. Hopefully, we will continue to come out with bond issues every quarter,” said Mr O.P. Bhatt, Chairman, SBI.
SBI intends to deploy the issue proceeds to augment its capital base. Its capital adequacy ratio, which as of December-end 2010 stood at 13.16 per cent, will improve by 100 basis points (or one percentage point). It will also go a long way in addressing the asset-liability maturity mismatches.
The bonds will be issued in two series – one will have a tenure of 10 years (with the bank having the option to call the bonds after five years) while the other will have a tenure of 15 years (call option after 10 years).
Retail investors i.e. those investing up to Rs 5 lakh, will earn 9.75 per cent on 10-year bonds and 9.95 per cent interest on 15-year bonds. Non-retail investors will earn 9.30 per cent on 10-year bonds and 9.45 per cent interest on 15-year bonds.
Unlike the maiden retail bond issue, investors in the forthcoming issue will not enjoy the benefit of step-up interest rate as the banking regulator has disallowed it.
Under the new Basel accord on bank capital adequacy and liquidity, bonds with the step up interest rate option cannot be treated as part of Tier-II capital. “The step-up option is no longer permitted by the RBI,” said Mr Hemant Contractor, Deputy Managing Director and CFO.
In its maiden retail bonds issue, the bank had offered investors step-up option of 50 basis points (i.e. they could earn 0.50 percentage points higher interest a year) in case it does not exercise call option after 5 years (for bonds of 10 years maturity) and 10 years (for bonds of 15 years maturity). The bank had then issued the 10-year bonds at 9.25 per cent interest and 15-year bonds at 9.50 per cent interest.
Only investors having dematerialised (demat) accounts can subscribe to the retail bonds issue. Besides its own collection centres (126 of them), the bank is relying on lead brokers – Citigroup Global Markets, Kotak Securities, and SBICAP Securities to sell the issue.
Given that many investors had missed the bus during the maiden bond issue, when it was closed in three days, the bank will keep the issue open till the last day.
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