SBI bonds 2011 to remain out of bound for millions

CHENNAI/MUMBAI: Twenty-five-year old R Rubesh from Cumbum in south Tamil Nadu is among millions of investors feeling left out of once-in-a-decade safe investment opportunity for the middle class that almost gives a 10% return with near sovereign guarantee.

State Bank of India’s 15-year 9.95% bonds will be elusive for him, thanks to just 126 or less than a percentage of its branches that would accept these bond applications. Middle class investors in smaller towns, who are ignored by financial intermediaries, cannot bid online either for the bonds sold on first-come first-served basis. They have to travel miles if they need it.

Pensioners, middle-level government servants and tiny shop owners in small towns who don't even fall in the tax bracket would miss this more than the ones in cities, since their priority remains safety with reasonable returns when consumer prices are rising in double digits. This sale touted as taking the bond culture to retail investors will have just one collection centre in Guwahati for eight North-Eastern states. Bihar and Jammu & Kashmir will have one each and Gujarat, the most prosperous state, at least 15, and Mumbai alone seven.

“There are so many retired teachers and government servants who want to invest in these bonds, but won't be able to because there is no collection centre here,'' says Rubesh from Cumbum, a town 540 kilometres south of Chennai and 125 kilometres from the nearest collection centre in Madurai .

“Mandatory demat is also a problem. They can't expect everyone to have a demat account.” Subscriptions open on Monday for the Rs 2,000 crore public sale of 10-year bonds at 9.75% and 15-year ones at 9.95% with call options. Of the proposed issue, 50% is for retail investors, and the remaining split between wealthy individuals and institutions. The green shoe option of Rs 10,000 crore will be for retail investors alone.

But the bank, citing lack of technology capabilities, will sell it only in 126 of its branches. Investors have to physically submit the forms where the collection centres are concentrated in cities. But demat, an electronic account to hold securities, is mandatory to buy these bonds. Just 1.14 crore demat accounts are registered at the National Securities Depositary , which is mainly operated by those who invest in equities.

“There is a technical constraint,” said Om Prakash Bhatt, SBI Chairman. “Since the bonds will be allotted to bidders only in dematerialised form, we have to handle it only from those branches which are equipped to handle it. Hence cannot use our entire branch network.'' But this goes against what the bank says in the offer document about itself and that there are demat account holders in far away towns who still can't buy these bonds.

“All of the bank's branches are connected to the bank's core banking solution application, a fully centralised database that provides for online real-time transaction processing efficiency across branches, through a centralized processing centre,'' says the bonds prospectus.