SBI to issue Rs5,000 crore retail bonds
By Our Banking Bureau | 30 May 2005
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 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.
"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 inaugurate
the year-long celebrations for the bank's 200th year on June 14 in Mumbai.
SBI had earlier floated Rs3,400 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.
"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.