MUMBAI: After the success of Tata Capital, it is the turn of the country’s largest bank State Bank of India (SBI) to tap the retail bond market.
The bank is planning to raise Rs 3,000-4,000 crore through the issue of subordinated debt to retail investors.
Senior officials from the bank said they would look at retail bond issue only if they could raise the money at an interest rate below 9%. The bond is likely to have a tenure of 5-10 years.
Meanwhile, SBI intends to raise about Rs 2,000 crore before March 2009 through a private placement of bonds. The retail bond issue may be launched before June.
SBI was the first bank to raise money through retail bonds. It garnered Rs 1,500 crore in 1994 by offering a floating interest rate pegged at 2% above its highest term deposit rate.
The bond issue had a 10-year tenure. It had a put and call option at the end of five years and this was exercised in ’98, when bonds were redeemed. No bank has tapped the retail market since.
“SBI has been toying with this idea for a while, but the success of Tata Capital intensified our plans to enter the retail bond market,” said a senior SBI official.
Tata Capital mobilised close to Rs 2,500 crore through its retail bond issue against the issue size of Rs 1,500 crore, which included a green-shoe option of Rs 1,000 crore.
Tata Capital, a double A+ rated company, offered 12% of a five year bond, with a three year put and call option. SBI feels that as a government owned entity, it can offer lower rates compared with private counterparts.
The bond issue will have to be priced slightly higher than the interest rates that the bank is paying. SBI offers 9% on 1,000 days deposits. “Although SBI can mobilise the money through private placement of bonds at very competitive rates, this is mainly a brand-building exercise,” said a senior SBI official.
The money raised will be deemed as tier II capital, which in turn will enable the bank to improve its capital adequacy ratio. SBI’s CAR stood at 13.72% as on December 2008. Even as corporate issuers stay away from the bond market, a host of banks are raising money through the private placement route.
Canara Bank has been the largest issuer of corporate paper this month, raising Rs 3,500 crore. Central Bank of India, Corporation Bank, Bank of Baroda and HDFC Bank sold tier-II bonds in recent days, although most issuances have been in the range of Rs 200-500 crore.