NEW SBI Retail Bonds Issue

 NEW SBI Retail Bonds Review

State Bank of India is going to launch Retail Bonds worth of Rs.1000 Crores on 18th October 2010 absolutely for the retail Investors.

Key Features of SBI Retail Bonds -

The bank is selling Rs 1,000 crore of 10 and 15 year bonds. The 10 year bond gives an interest of 9.25% and has a call option at the end of 5 years. The 15-year bond carries an interest of 9.5% and has a call option at the end of 10 years. If the call option is not exercised, the interest will rise by 50 basis points for the remaining period. The bonds will be listed on the NSE.

So What’s Special about NEW SBI Retail Bonds?

Well, you may think that SBI is a Rs.1 lakh crore bank than why it wants to raise just Rs.1000 crores by issuing retail bonds?

Well, basically this is the experiment by SBI Bank. I mean these bonds are different than other types of bonds and fixed income instruments.

These are different in the way that, These bonds will be listed on the NSE just like shares of the listed companies.

And that’s why the investors can exit from these bonds by selling these bonds into the secondary market to other investors.

The Indian Bond market is getting matured day by day and this is the first of its kind of experiment. In the developed world like USA and Europe, this is the common thing because the bond markets in developed countries are mature.

Right now the only problem with PPF and NSC or KVPs is that, they have a COMPULSORY lock-in period. This is because they are not listed on the stock exchanges.

But these new retail SBI bonds will be listed on the stock exchanges so that investors can exit from them after 5 years and 10 years in the secondary market.

This is really a revolutionary change in the Indian Bond market. These are the Tier-II bonds having AAA CRISIL rating and as a first round, on 18th October 2010, the SBI will issue bonds worth Rs.500 Crores.

Buy or Not Buy?

Well, Yes. Conservative investors can buy these type of bonds. There is no problem. If you are a conservative investor than go for it. No problem.

However, just keep in mind that even if these bonds are giving you 9.25% and 9.50% annual returns, the inflation rate is well above 10% in India right now and in the future it may remains the same. Ideally the returns from fixed instruments should be 2% above the rate of inflation. So keep in mind this fact before investing in these bonds.