Mumbai (Agencies): In order to shore up its Tier II capital, the State Bank of India on Friday announced the launch of Rs 2,000-crore retail bond issue from Monday.

Addressing media persons, Chairman of the bank Omprakash Bhatt said, "Following the huge success of our maiden retail bond issue last October, which was snapped up 19 times, we are happy to launch another issue with a better yield from Monday."

He said, "The issue is part of our planned Rs 10,000-crore retail bond issue. We will be looking forward to going to the market every quarter."

Chief Financial Officer of the bank Hemant Contractor said these Lower Tier II bonds are being issued in two series--Series 3 and Series 4.

Series 3 bonds have a tenor of 10 years with a call option by SBI after five years and a coupon rate of 9.75 per cent per annum for retail and 9.30 per cent for non-retail applicants.

Series 4 bonds have a tenor of 15 years and a coupon rate of 9.95 per cent for retail and 9.45 per cent for non-retail investors.

These bonds will be distributed through 126 branches spanning 79 centres and will be open to only those with demat accounts. The issue opening on February 21 will close on February 28.

Contractor further informed that the bond issue will not be redeemable at the option of bond holders or without prior RBI permission.

The bond issue is of Rs 1,000 crore with the option to increase the issue size by a similar quantum if the market condition demands it, he said.

The bonds, each having a face value of Rs 10,000, have AAA rating from Crisil and Care and will be listed on both the BSE and NSE that would offer liquidity to the investors.

When asked how this issue is different from the earlier one, Bhatt said the main distinction is the absence of the step-up option (under which the bank offered the option of increasing the coupon rate by 50 bps if market conditions
adversely changed). "The bank is not offering this option in this issue as it is not allowed by the RBI now," he added.

On the rationale for the issue, Bhatt said, while the primary objective is to shore up Tier II capital (which comprises mostly dept, while Tier I capital is constituted by
equity capital), we also wish to help develop a strong corporate debt/bond market. "We hope other banks and companies will follow our example," he said.

SBI's Rs 1,000-crore maiden retail bond issue was snapped up 19 times last October. It had offered 9.25 per cent on a 10-year bond and 9.5 per cent on a 15-year instrument.

The state-run lender, which has been waiting for the government nod since the beginning of the fiscal to launch Rs 20,000-crore rights issue to lap up its Tier I capital, is offering better yield to reflect the changed interest rate scenario. The RBI  so far this fiscal hiked policy rates six times as inflation went over the roof.

SBI itself has hiked deposit rates a couple of times and is offering 9.25 per cent for deposits for 555 days and 1,000 days.

Since last July, the bank has hit the overseas markets thrice with bonds, the latest being the issue in Swiss francs (325 million or Rs 1,500 crore) early this week. Earlier, it made a 750 million euro issue in October and a USD 1 billion issue in July.