State Bank of India shelves retail bonds

The State Bank of India (SBI) is unlikely to come up with a retail bond issue this year. Reason: it will get locked to a higher coupon at a time when the interest rate cycle is peaking out.

“There’s nothing in the pipeline as far as I know. The SBI has issued long-term retail bonds in the past, but the present scenario is not conducive. It will cause a loss if interest rates start falling,” two sources with direct knowledge of the matter said.

One person said that if the bank needed capital, the first preference will be Tier-I.

“If SBI does not get that, it will be compelled to go for Tier-II - but in that case it will not be a public issue. SBI will prefer private placement because it will be about 25 basis points cheaper. It’s administratively cheaper too than retail bonds,” this person said.
SBI’s long-standing demand for a Rs20,000 crore rights issue is yet to get the green signal from the government, curbing its ability to lend.

At banks, Tier-I capital includes equity and disclosed reserves, while Tier-II includes undisclosed reserves, general loss reserves and subordinated debt such as bonds.

The previous chairman of SBI, Om Prakash Bhatt, had told in February that the bank plans to have a retail bond issue every quarter.

Last fiscal, the bank had floated two retail bond issues. The first, in October, was worth Rs1,000 crore, while the second, in February, was twice that amount.

Both the issues were oversubscribed due to investors’ faith in SBI and good returns on these bonds.