State Bank of India (SBI)-Lower Tier II Bonds

SBI aims to raise 500 crore, to improve its capital base with an option to retain an oversubscription (in case of additional demand of the bonds beyond the minimum limit) up to 500 crore. Every bank is mandated to have enough capital on its balance sheets as it can lend against that.

SBI bond is not an infrastructure bond and, therefore, not eligible for tax deduction.

Issue Period – October 18th, 2010 to October 25th, 2010.

Two options are available for investors:

Series 1 bonds (10-year)

Offers an interest rate of 9.25% per annum.

Series 2 bonds (15-year)

Offers an interest rate of 9.5% per annum.

Investors do not have a choice of receiving quarterly or half-yearly interest options, so it may not work for those seeking periodic income through the year.

Liquidation of Bonds

These bonds are mandatorily issued in dematerialized form and will be listed on the National Stock Exchange (NSE) in case you want to sell them.There is a Call option (SBI can call back) on Series 1 bonds after 5 years and Series 2 bonds after 10 years.

If the bank fails to exercise its call option, the interest will marginally rise by 50 basis points, over and above the interest rate.

Source: Geojit

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