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State Bank of India is planning to raise Rs 3,000-4,000 crore through the issue of subordinated debt to retail investors. The bond is likely to have a tenure of 5-10 years with an interest rate of about 9%. The retail bond issue may be launched before June.

SBI also intends to raise about Rs 2,000 crore before March 2009 through a private placement of bonds.

SBI was the first bank to raise money through retail bonds. It garnered Rs 1,500 crore in 1994 by offering a floating interest rate pegged at 2% above its highest term deposit rate. The bond issue had a 10-year tenure. It had a put and call option at the end of five years and this was exercised in 1998, when bonds were redeemed. No bank has tapped the retail market since.

Tata Capital mobilised close to Rs 2,500 crore through its retail bond issue against the issue size of Rs 1,500 crore, which included a green-shoe option of Rs 1,000 crore. The success of Tata Capital  SBI has been  toying with this idea for a while, but the success of Tata
Capital intensified their plans to enter the retail bond market.

Tata Capital, a double A+ rated company, offered 12% of a five year bond, with a three year put and call option. SBI feels that as a government owned entity, it can offer lower rates compared with private counterparts.

SBI officials said, “The bond issue will have to be priced slightly higher than the interest rates that the bank is paying. SBI offers 9% on 1,000 days deposits.

The money raised will be deemed as tier II capital, which in turn will enable the bank to improve its capital adequacy ratio. SBI’s CAR stood at 13.72% as on December 2008. Even as corporate issuers stay away from the bond market, a host of banks are raising money through the private placement route.

The State Bank of India will be the sole booking agent for Tata Motor’s Nano. It is said that the Bank will make formal announcement in a few days.

It is learnt that initially, the SBI will distribute the prospectus in 100 select branches. The booking is expected to start by the end of this month and the initial amount will be Rs 70,000 per car. The allotment of the first 100 cars will be made through a lucky draw.

Tata Motors is expected to produce 3,000 cars a month in the beginning, while it will accept orders for one lakh cars.

Bank said “The advantage of the SBI being the sole booking agent is that a large number of buyers may become a car loan borrower. We also create a huge database of customers to whom we can cross-sell some of our products later”. The SBI will also offer car loans at an interest of 10 per cent. This offer is valid till May 31 this year.

The bank has also offered an 8 % interest — fixed for one year — on home loans till April 30.

SBI, India’s biggest bank announced on Friday a reduction in lending rates against warehouse receipts to farmers. It is done with the objective to increase credit flow to rural areas and helping farmers to avoid distress sales during the harvest season.

The bank will disburse loans up to Rs 10 lakh against warehouse and cold storage receipts directly to farmers at a fixed rate of 8% against the floating rates of 10.5-14.25%.

The 8% interest announced by the bank on Friday will come into force with immediate effect and be valid for 12 months in respect of loans sanctioned and disbursed across the country till May-end. After May, a farmer will not be able to avail of the package.

The loans will be made available to farmers, irrespective of whether or not they were given crop loans for raising the produce. The presenet outstanding against such loans is Rs.500-600 crores and SBI expects to increase it to Rs.2000 crore by May end.

SBI lends against warehouse receipts issued by public and private sector warehouses which are recognised by the bank. Prices of agri products tend to decline during the harvest season.

A farmer after depositing his produce with a warehouse, could avail of a loan of up to 65-75% of the value of the produce against a warehouse receipt from the bank which holds the goods as collateral. The bank can sell the goods in the event the borrower defaults on repayment of loan or interest.

Prices on an average tend to rise around 40% three months after the harvest season ends. Therefore if a farmer borrows Rs 100 from the bank, under the current package, he will end up paying just Rs 2 to the lender after three months and get a 40% appreciation in price. He thus enjoys the twin benefit of getting his immediate credit needs met and securing a higher price for his product by selling during the lean season.

State Bank of India (SBI) has surprised competitors by slashing interest rates on loans for new cars.

SBI will offer new car loans at a fixed rate of 10% for one year. It is 1.75% lower than the prevailing rate offered by market leader, HDFC Bank. After one year, rates will be linked to the bank’s existing prime lending rate (PLR). The borrower will be charged 75 basis points (bps) below PLR for a three-year loan of Rs 7.5 lakh and above. Loans below Rs 7.5 lakh will carry an interest rate of 50 bps below PLR.

However there is no cut in interest rates by HDFC Bank. The 10% offer is the lowest in the industry, with most commercial banks offering car loans in the 11.5-13% range. Up until now, SBI offered new car loans at 11.5-12.5%. The new scheme’s success would depend on how the SBI promotes this scheme among auto dealers.

The concessional 10% new auto loan scheme announced by SBI on Friday will be

1. applicable for new cars only.
2. available from February 23 to May 31, 2009 and
3. applicable for all types for passenger cars.

Last month, the bank has decided to freeze interest rates on home loans at 8% for one year.

SBI expects the new auto loan scheme to generate substantial incremental demand for passenger cars. SBI’s auto loan portfolio is about Rs 9,000 crore against HDFC Bank’s outstandings of 13,000 crore.

According to the Society of Indian Automobile Manufacturers, overall automobile production in January 2009 fell by 11.92% over the same month last year. However, it is more than December 2008. January sales are generally more than December sales as customers wait for new models in January, which fetch a better value in the used car market. The cumulative production data for April 2008-January 2009 shows growth of 2.32% over April 2007-January 2008. With lower prices and huge discounts, January 2009 sales registered more than December 2008 sales, but they were not enough to make the year-on-year growth positive.