State Bank of India's Rs 2,000-cr bond issue to hit markets on Monday

The nation's largest lender State Bank of India (SBI) on Tuesday said it will raise Rs 2,000 crore from the market through a retail bond issue that will open on Monday.

The bonds will attract coupon rates between 9.75 per cent to 9.95 per cent for retail investors.

The issue is of Rs 1,000 crore with an option to increase it by a similar amount if the market demands it, and is part of the bank's planned Rs 10,000-crore retail bond programme in 2010-11 through 2011-12, to shore up its Tier 2 capital.

A senior bank official, who did not wish to be identified, said the bank will hit the market with a Rs 2,000-crore bond issue from February 21.

"These bonds will be of two maturities - 10 and 15 years. While the 10-year bonds will offer a coupon of 9.75 per cent to the retail investor, the 15-year bond will fetch 9.95 per cent to him. The bonds that will open on February 21 and close on 28, will be listed on both BSE and NSE," the official added.

The state-run bank has been awaiting the Finance Ministry's nod to launch an ambitious Rs 20,000-crore rights issue since the beginning of this financial year.

Though the banking secretary gave his nod last month, a formal notification is awaited and considering the time needed for Securities and Exchange Board of India's (Sebi) permission, it's certain that the bank will not be able to raise the money this year.

The bank official further said the bonds will fetch 9.3 per cent and 9.45 per cent to the non-retail investors for 10 and 15 years respectively. The 10-year bonds will carry a call option in the fifth year, while the 15-year issue will have the call option in the 10th year.

SBI's Rs 1,000-crore maiden bond issue was snapped up by the market in October 2010. The issue was oversubscribed 17 times on the opening day itself, forcing the bank to curtail subscription, as investors were lured by high returns and finally the issue was overbought 20 times.

The bank had then offered 9.25 per cent on a 10-year bond and 9.5 per cent on a 15-year instrument.

Considering this, the current higher offering only reflects the market reality in the light of the hardening interest rate scenario. SBI has itself hiked deposit rates a couple of times and is offering 9.25 per cent for deposits for 555 days and 1,000 days.

Late last month, Chairman O P Bhatt had said these bonds will be issued in two variants, Series 1 and Series 2, having maturity of 10 and 15 years, respectively, with a face value of Rs 10,000 each. The bonds offer an interest of 9.25 per cent for 10 years and 9.5 per cent for 15 years.

These bonds are not deposits of the bank and are not guaranteed or insured and they may not be used as collateral for any loan made by the bank or any of its subsidiaries or affiliates.

Bonds are different from fixed deposits and are not covered by deposit insurance, he added.

Since last July, SBI has also hit the overseas markets thrice with bonds, the latest being the first issue in Swiss francs (325 million or Rs 1,500 crore) early this week; a 750 million euro issue in October and a $1 billion issue in July.