SBI Bonds Issue

Click here to read about the latest bond issue which will open on February 21st 2011.

SBI Retail Bonds are the latest offering from SBI which is coming up with a bond issue that opens on 18th October and closes on 25th October. This is the second big bond issue this month with the IDFC issue still running.

A lot of people will be comparing the SBI bond issue to the IDFC one, so let me say upfront that they’re quite different in one key aspect which is the tax savings. The IDFC bond issue was an infrastructure bond under Section 80CCF, and could get your taxable income reduced by up to Rs. 20,000.

The SBI retail bonds are not covered under this, so you won’t get any 80CCF benefits. Now let’s look at some of its main features.

Interest rate on SBI Bonds

There are two series of SBI Bonds – Series 1 Lower Tier II Bonds gets you an interest rate of 9.25%, and has a tenor of 10 years, and the Series 2 Lower Tier II Bond has an interest rate of 9.50%, and a tenor of 15 years.

This compares quite favorably to the fixed deposit rates SBI offers as the SBI fixed deposit interest rates for 5 – 8 years is 7.50%, and more than 8 years is 7.75%. These bonds are not covered under deposit insurance since they are not fixed deposits, and are not redeemable at the option of the bondholders.

There is a call option or redemption with SBI according to which they can redeem the series 1 bonds after 5 years, and series 2 bonds after 10 years. If they don’t do that then the interest rate will rise by 0.50%.

Demat account is compulsory for investing in SBI Bonds

You need a demat account to invest in these SBI bonds, and your bonds will be held in dematerialized form. If you don’t have a demat account and wish to invest in them then you will have to open a demat account fairly quickly.

Tax implications of the SBI Retail Bond

SBI Retail Bonds are different from the IDFC bonds in the sense that they are not covered under section 80 CCF, so there won’t be any reduction from your taxable income because of investment in this bond.

The interest from these bonds will be treated as income that gets added to your other income and you will pay tax on it accordingly.

SBI Bonds to be listed on NSE

These bonds will be listed on the NSE, and as far as I could understand you will be able to freely trade the bonds even within the 5 year period. So you could hold the bond till maturity or sell it on the exchange if a market develops for it. The prospectus states that all formalities to list the bond will be completed within 30 days of date of closure, so the bonds will be listed on the exchange to buy and sell fairly soon.

When will the interest be paid on the SBI bonds?

The interest on both the series of SBI bonds will be paid out on April 2 of every year.

What is the minimum application size on the SBI bond?

The minimum amount you need to invest in these bonds is Rs. 10,000, you can subscribe in multiples of Rs. 10,000 after that.

How do these SBI Retail Bonds compare with fixed deposits?

Quite favorably because of the higher interest rate and option of listing on NSE. People are expecting these retail bonds to over-subscribe, so let’s see how it goes.

These were some important points about the SBI retail bonds that’ll help you make a decision whether they are right for you or not. If you have any other questions, please leave a comment, and I’ll try to answer them.

Click here to read about the latest bond issue which will open on February 21st 2011.

94 thoughts on “SBI Bonds Issue”


  2. hi Sivam
    the BSE code No. of SBI Retail Bonds at 9.95% for 15 years is 961703 and the code for 9.75% for 10 years is 961701.
    warm regards

  3. Hi Manshu,

    thanks for reply. my thoughts:

    on the day of listing, it should be exactly 10,000 (unless listed with a premium)
    now interest value will be added everyday
    after 1st month of issue, assuming 10% interest = 1000/12 = 83, so value = 10,083
    after 2rd month of issue, value = 10,166
    after 1 year, value = 11,000
    now SBI pays an annual interest of 1000Rs, value becomes 10,000 again
    if there is any premium of say 3% then the value would be 10,300

    in future if the mkt interest rate decreases to say 8%, many want to buy this from secondary mkt to get 9.75% from SBI, so value would increase(premium)

    if the mkt interest rate increases to say 12%, no one wants to buy this, so value may decrease(discount) or trade without any premium

    Please give your feedback



    1. It is expected to list at a premium right off the bat because demand is expected to outstrip the supply. The second part of your comment is right which is that bond prices and interest rates are inversely related.

    2. regarding buying the bond with premium depends upon the trend of the mkt interest rate,whether it goes up or nosedive and the bond issuing companies trust worth .sbi bond fetch higher premium in the 15 years bond compared to 10 yeras sbi bond.l&t fin ncd fetch higher premium compared to indianinfoline fin ncd.

  4. Hi Manshu,

    I have demat account with BN Rathi
    I want to buy SBI bonds.

    Could you clarify me the following doubts

    1. SBI bonds are trading at a premium of about 5% — what does this mean?
    2. If I need money in future, can I sell them in NSE?
    I buy them now for 1Lac, then receive the annual interest of approx 10k , then immediately sell the bonds in NSE. will I get my principal of 1Lac(exactly) or less or more?

    3. what if I sell them before getting yearly interest? say 8 months, still SBI will pay me interest for 8 months?

    4. while making a FD, I usually give them form 15h, so that tax will not be deducted
    similar thing can be done in SBI bonds?



    1. 1. This means that bonds are trading at 5% above their face value which is 10,000 in the new issue.
      2. Yes. You will get less principal after the interest has been paid out.
      3. No, you won’t be paid any interest, but the price at which the bond is trading might still be higher than the face value.
      4. I’m not sure about this point, though I think it can be done.

  5. Dear Sir

    Just want to know that, is it not a better idea to invest the money in Post office MIS + RD scheme (more than 10.5% assured interest) than investing in SBI bonds which will attract capital gain tax as well

    1. Prashant – POMIS interest income also attracts tax like the interest on SBI bonds. The capital gains come into play only in a scenario where you sell it in the market and make some capital gains which may not always happen. But other than that – yeah the yield there is slightly higher.

      1. Prashant – PO MIS & RD combination would not compete with this bond issue in terms of yield. PO MIS gives 8% p.a.on a monthly basis. Which can be further reinvested in PO RD. The PO RD gives an interest rate of 7.5% quarterly compounding. The MIS also has a maturity bonus of 5% at the time of maturity. So in all interest generated @8% is reinvested @7.5% so the overall compounding interest is somewhere in between these two rates. Even after considering the 5% bonus for 6 yrs of MIS deposit, the SBI’s 9.95% clearly wins in terms of the yield. You can also invest the yearly payout of SBI in PO RD. Do you get the idea ?
        People do keep a look out for a sequel of this issue. SBI will be coming with such an issue in the F.Y.2011-12.

  6. Mr Manshu,

    I want to know your openion about this bonds.
    I should invest now or let this issue come up.
    what is your stratiges about this.


    1. Sorry Hemant, but I don’t give individual investment advice here; you know what the terms are so if it makes sense to your needs then go for it. I really don’t have a lot of input to provide with respect to strategy etc.

  7. Mr Manshu,

    i gone through all the comments and i come to know that its intresteting to Invest in SBI bond.

    it look good deal for long term.

    can you please let me know more about SBI bond.


  8. If i sells these bonds after 1 year of allotment than there will be no income tax on the profit as these will be sold through exchanges only. There is no long term tax if a security is sold though exchanges. Am i right?



    1. Lekhraj – No that’s not right. Long term capital gains are only exempt on shares, and equity based mutual funds – these bonds will attract capital gains tax if you sell them at a profit.

  9. if some one buy 10 bonds than how many rs intrest he got ? which date ? how many tds dedust? any 15g/15 h form ?any book closer come ? from where this book closer we find?

  10. Sir,
    Will you kindly clarify my following doubts.

    1. where the Bank will reinvest this fund.
    2. Do we get interest like a dividend
    3. if we invest Rs 1 lack how many Bonds he will issue.
    4. in case he issue 10 bonds for 1 Lak can we trade 10 Bonds according the the Market price. For remaining bonds do we get interest

    1. The SBI bonds are closed for subscription Vijaya, so you won’t be able to buy this bond but from the stock exchange, which I don’t know how that’s done.

  11. i want to know the listing details of SBI Bonds on exchange………means its code,,symbol..etc………………………

    1. Parth Patel had given an excellent response to this very question earlier, so let me just copy paste that response again for you Murgesh.

      You do not require a different platform, they can be sold normally like any other stock.
      In Odin, the NSE scrip id is 20518 for the N1 bonds (9.25%), and 20520 for the N2 bonds (9.5%).
      Give your broker this info if you need help with Odin.”

  12. Pankit,
    You do not require a different platform, they can be sold normally like any other stock.
    In Odin, the NSE scrip id is 20518 for the N1 bonds (9.25%), and 20520 for the N2 bonds (9.5%).
    Give your broker this info if you need help with Odin.

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