SBI has option of pre-payment

MUMBAI: State Bank of India will offer different rates of returns on bonds for retail and non-retail investors. Non-retail investors, who include institutions and high net-worth individuals who invest in bulk, will receive 9.3% for 10 years and 9.45% for 15-year investments. The bank has an option to pre-pay investors in the 10-year bonds after 5 years and after 10 years for 15-year bondholders.

Senior officials of the bank said that details regarding the opening of the issue would be announced on Tuesday. Although these investments are long-term in nature, investors are assured liquidity through the listing of these bonds.

Investment bankers who are distributing the issue say earlier experience suggests that SBI is bound to receive a huge oversubscription on first day itself. "There are many banks that are offering 9.5% and above on fixed deposits. But these investments typically are for one-two years and interest rates are widely expected to come down in the long-term," said an investment banker.

SBI's earlier retail bond issue, which offered a much lower return, was a huge success with the bonds being sold out on the first day.

Successful investors got an opportunity to make equity-like gains as the bonds were listed at a 5% premium on listing. While the returns on the bonds are even better, the listing position would depend on the extent of unsatisfied demand in the public issue. Prices of SBI's earlier bonds fell marginally on Monday, but the securities continue to trade at a significant premium over the issue price.

Although the size of the issue is minuscule compared to the bank's balance sheet, the issue is part of an ongoing programme to develop a market for long-term resources. The bank presently funds all its long-term loans, which include home loans and loans to the infrastructure sector, through core savings deposits and medium-term deposits.

By-TOI