The bank is doing brisk business in short-term trade finance as it has been able to raise enough retail deposits at Libor plus 60 or 80 basis points, he said. There is a long list of customers willing to borrow at Libor plus 350 basis points and, so, the net interest margin should go up by about 200 basis points, he added.
On an $11-billion trade finance book, SBI hopes to make an additional $200 million by way of interest. With the euro zone in turmoil, European banks have been keen on shedding assets and Indian banks have been quick to grab the opportunity.
If the original deal took place at, say, 190 basis points plus Libor, today, we are earning 330 basis points above Libor, said Chaudhuri. The SBI chairman said the bank would continue to shop for quality assets. Typically, the loans have a tenure of 3-5 years and we have the matching liabilities to fund them, he said. Following the rise in risk aversion globally, Indian corporates now have to shell out as much as 450-500 basis points over Libor to borrow long-term money.
Earlier, they were able to tap the markets at a lower cost of 250 basis points over Libor. SBI does not plan to access the overseas markets for funds just yet because money has become expensive and, typically, the bank doesnt borrow unless loans are available at Libor plus 250 basis points.
We borrow for five years and, so, we need to look for matching assets. Today, our customers would not want to pay beyond Libor plus 350 or 350 basis points. But we need to earn a spread of 100 basis points. So, if we borrow at Libor plus 300 basis points, we may not be able to lend, said Chaudhuri.