SBI won't let you buy retail bonds online

MUMBAI: India’s largest bank, the State Bank of India , has decided not to offer to investors the option of subscribing to its retail bonds online like many other issuers, opting to sell these bonds only through its country-wide branch network.

The retail offering of bonds aimed at raising Rs 2,000 crore has been priced attractively with the bank offering 9.75% for 10 years and 9.95% for 15 years. In most bond offerings, investors have the option of applying online or through the branches. SBI officials said the bonds would be sold at 150 branches across the country.

The issue will open for subscription on February 21 and close on February 28. The bank has also decided to price the bonds differentially for various categories of investors. It will offer 9.30% for a 10-year bond for non-retail investors and 9.45% for 15 years. SBI has defined a nonretail investor as on who invests over Rs 5 lakh. For the 10-year bond, SBI has a call option at the end of the fifth year, and for the 15-year bond, the bank has a call option at the end of the 10th year.

The call option allows SBI to prepay the principal amount and its interest component at a pre-determined year, which is the end of the fifth year or the 10th year. SBI has sought the approval of the regulator for an umbrella bond issue of Rs 10,000 crore and the latest tranche of borrowing , aggregating Rs 2,000-crore bond issue, is part of this offering.

The bank is offering 9.5% for 1,000-and 555-days on its retail deposit. The SBI bond offering is expected to be oversubscribed due to its attractive pricing. Companies issuing infrastructure bonds are not allowed to offer a coupon rate higher than the 10-year benchmark gsec rates prevailing at the monthend preceding the issue date, going by government norms.

The yield on the 10-year is in the range of 8-8 .15%, which means that issuers cannot offer an interest rate of over 8.15%. SBI is not bound by any such restriction or cap on interest rates on its bond issue. Brokers marketing the issue say the main attraction of the bond, besides its pricing, is liquidity. “As these securities will be listed on the stock exchange, they can be immediately traded once allotted. Given the adequate safety of the issue , there will be a lot of demand. Investors should allocate a portion of their investments to this instrument ,” a broker said. This is the second retail bond issue of SBI.

In the last bond issue, SBI offered investors the choice of 9.25% on a 10-year bond and 9.5% on a 15-year bond. There was also a step-up option , whereby the bank would pay half a percentage point more if it did not exercise its call option at the end of 10 years.

Source: Economic Times