SBI chairman .P. Bhatt (left) and M.B.N. Rao, chairman of Canara Bank, in New Delhi on Monday. (PTI)

New Delhi, Feb 5: The State Bank of India, the country’s largest commercial bank, today announced plans to raise $700 million in bonds within this fiscal.

The bank is also planning to come out with a follow-on public issue.

Sources said SBI has hired Barclays Plc and Citigroup Inc to sell the dollar-denominated bonds. Deutsche Bank AG and HSBC Holdings Plc will also help in the sale. The bonds may be either debt bonds or hybrid bonds that have characteristics of both debt and equity instruments.

“We have plans to come out with a public offer next fiscal. However, we still have to finalise the size of the offer,” SBI chief .P. Bhatt told newspersons here today.

The government recently agreed to a book transfer of the majority shares of SBI — 59.73 per cent — from the RBI to itself. This was widely seen as a prelude to a public offering.

Bhatt said the transfer would pave the way to reduce government’s stake in the bank to 51 per cent in phases.

Even the SBI act, in its present form, allows a reduction in the stake to 55 per cent; an amendment to the act, pending in Parliament, allows the stake to be reduced to 51 per cent.

Bhatt said the extent of reduction depends on “how much funds we want to raise and at what price,” adding that the funds could be raised through public issue or rights issue or both.

The SBI chief said the issue of bonds would help the bank shore up its capital base. Analysts also point to the benefits in terms of lowering of debt costs, especially after the rating upgrade by Standard & Poor’s.

Since SBI enjoys sovereign rating and an impeccable reputation in the global markets, it can sell the bonds by offering lower rates of interest than the earlier series of overseas bonds — The India Millennium Bonds.

In the wake of RBI’s recent monetary measures, the SBI chief said: “Obviously there is some pressure (on liquidity)”, but the bank will not raise interest rate on home loans for the time being.”

He said the bank had no plans to raise the PLR (prime lending rate) any time soon either, adding the net interest margin (NIM) of over 3 per cent would be maintained by the bank.

The government last week decided to acquire the stake of the Reserve Bank of India (RBI) in SBI, in a cashless transaction aimed at separating the ownership and regulatory functions of the RBI.

“Following the recommendation of the Narsimhan committee, the Union cabinet has approved the proposal to transfer the RBI stake in SBI, Nabard and NHB (National Housing Bank) to the government in a cashless transaction,” finance minister P Chidambaram had said after the Cabinet meeting.