High Returns on SBI Bonds – Open to Retail Investors


State Bank of India (SBI, in its forthcoming retail bond issue has offered an attractive interest rate at t 9.25% for 10 years and 9.50% for 15 years. The bank expects the interest rates to firm up The return offered on these retain bonds is 2 percent more than the interest SBI offers on its 5 year deposits and above the yield of government securities of comparable maturity. Recently HDFC had raised Rs 250 crore from private placement at an interest rate of 8.95%

State Bank of India (SBI, in its forthcoming retail bond issue has offered an attractive interest rate at t 9.25% for 10 years and 9.50% for 15 years. The bank expects the interest rates to firm up The return offered on these retain bonds is 2 percent more than the interest SBI offers on its 5 year deposits and above the yield of government securities of comparable maturity. Recently HDFC had raised Rs 250 crore from private placement at an interest rate of 8.95%. While agreeing that the issue is attractive and competitive, according to chairman SBI that frequent issue of bonds would besides creting long term resources also create liquid secondary market for its bonds.

"The issue is priced attractively, because it is the first time we are testing the retail bond market and also there is a slight upward bias on rates," Mr Bhatt told media persons on the launch of the bank's Rs 1,000-crore bond issue. He indicated that such bond issues were likely to become a regular feature. Signaling about yet one more interest rate hike – RBI meets in November for mid term Review - l that interest rates may move up, Mr Bhatt said that interest rates on deposits have inched up in the second quarter, which may require the bank to reprice its loans by revising its base rate - the benchmark rate for floating-rate loans. SBI, unlike other banks, had not hiked its base rate in the first week of October. SBI's base rate is still at 7.50%.

"We are confident the issue will be oversubscribed in the first hour of opening," said Mr Bhatt. The issue which is opening on October 18 and closes on October 25 and allotment would be made on a first-come first-serve basis. The bank has allotted 50% for retail and 25% each for HNIs and institutional investors. Allotment of bonds in case of over subscription, will be on proportional basis.

Regarding the much awaited Rights Issue, Mr Bhatt, on Friday reiterated that the "bank's proposed Rs 20,000-crore rights issue was on track. He said that permission for the issue was expected by end-December and the capital would come in by the end of the fiscal. Government holds 59% stake in SBI and it would need Rs 11,800 crore to subscribe to its Right Issue.

About the Bond Issue, Mr Bhatt said, "We wanted to give a different product to investors and our customers. If it is successful, we will come out with more and more such issues. The issue could be on tap so that we can come out with it often."

The bank's Tier-II offering will comprise an issue of Rs 500 crore with an option to retain over subscription up to 500 crores or issue of additional bonds totaling Rs 1,000 crore.

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