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SBI plans Rs 5,000 cr retail bonds

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Our Bureau Mumbai
Last Updated : Feb 06 2013 | 8:52 AM IST
The 10-year bonds will probably be the largest domestic retail bond issue.
 
The State Bank of India (SBI) is planning to float Rs 5,000 crore worth of 10-year bonds for retail customers. This will probably be 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 sources close to the bank 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 (CAR).
 
"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 kick off the year-long celebrations for the bank's 200th year on June 14 in Mumbai.
 
The bank has been planning a series of events across the country during the year to highlight the journey of a one-branch Imperial Bank in Job Charnock's Calcutta to the country's largest commercial bank, which had almost a $1 billion net profit last year.
 
The SBI had earlier floated Rs 3,400 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.
 
SBI has recorded 27.79 per cent credit growth in 2005. In absolute term, the credit growth was Rs 44,000 crore -- the highest in State Bank's history.
 
In the current financial year, it expects about 23 per cent credit growth.
 
"To support this growth, we need higher capital. Even after raising Rs 5,000 crore from the market, the bank's capital adequacy ratio will be marginally higher than 13 per cent from the current level of 12.45 per cent," he said.
 
"Mobilisation 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.

 
 

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First Published: May 30 2005 | 12:00 AM IST

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