SBI plans 10-year retail bond issue next fiscal

Bangalore: State Bank of India (SBI) Chairman OP Bhatt said the bank is looking at tapping the retail bond market next year with a 10-year issue. To begin with, the bank will mop up between 50 crore and 100 crore through the bond issue, which will carry a market-related interest rate.

Resources raised via long-term retail bonds can, to an extent, help banks correct asset-liability mismatches arising from short-term liabilities financing long-term assets. Market watchers say that if the bank offers an attractive coupon rate, then the long-term (infrastructure) bonds could get a good response from retail investors. The Budget 2010-11 had proposed an additional deduction of 20,000 on long-term infrastructure bonds for income-tax payers over and above 1 lakh deduction allowed on saving instruments.

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On the status of credit offtake in the last quarter, Bhatt said, "Though credit offtake is there, it is not much. Profitability will not be under any more pressure than in the past." Excess liquidity with the bank, however, has come down from 75,000 crore as of December-end 2009 to less than 50,000 crore now.
On the marked-to-market (MTM) provisioning that the bank may require to make due to rising yields on Government securities, the SBI Chairman said whether 200 crore or 400 crore, provisioning will be needed, can be settled only by March-end.

Bhatt emphasised that there was no urgency to raise capital immediately as SBI had a capital adequacy ratio of 14 percent. However, as and when the need to raise capital arises, he indicated a distinct preference for the rights issue route by stating that, "I want the Government to be a majority shareholder in SBI."

The Government recently tabled the SBI Amendment Bill in the Lok Sabha, whereby the threshold below which its shareholding in the bank cannot fall will be pared to 51 percent from 55 percent now. SBI will be crystallising its deposit and credit growth targets for FY2010-11 within the next 10 days, said the Chairman.
Bhatt said the eight percent special home loans scheme introduced in late 2008 got a good response with almost Rs 2,500 crore worth of loans getting sanctioned every month. By this month-end, the bank would take a call on whether to continue the scheme. The RBI stipulation that banks pay interest to savings bank account holders on a daily product basis from April 1, will raise the cost of deposits for SBI by 15 basis points.
Meanwhile, the Reserve Bank of India has given its approval to the merger of State Bank of Indore with parent State Bank of India, said the SBI Chief.

The next step is the Government's approval to the amalgamation scheme, followed by the meeting of the boards of the two banks ratifying the merger. The final step is informing the stock exchanges. The merger process will take a month or two to be completed.