SBI to buy loans from banks in US, Europe

Written by Bloomberg | Updated: Apr 13 2012, 08:52am hrs
State Bank of India, the countrys largest lender, plans to buy loans from banks in the US and Europe to boost its overseas credit assets and profitability.

The Mumbai-headquartered bank is seeking to purchase loans given mostly to Indian companies, managing director Hemant Contractor, who heads the banks international operations, said in an interview on Wednesday.

Record net interest margin for its international loans encouraged the State Bank of India to seek the acquisitions and expand the business, Contractor said. Credit at State Banks overseas offices expanded 21% last year compared with a 17% increase at its India unit, the bank said on February 13.

Being a state-run lender they have better access to dollar funding which gives them confidence that they will be able to widen the margins further, said Saikiran Pulavarthi, Mumbai-based banking analyst at Espirito Santo Securities.

State Banks shares have risen 25% in the past six months. European banks are trying to sell 2.5 trillion euros ($3.3 trillion) of assets as they seek to cut balance sheets, PricewaterhouseCoopers LLP said in a report on February 3. While the total amount of their bad loans has remained stable at about 518 billion euros in the past year, increases in Spain, Greece and Italy are offsetting reductions in Germany and Ireland, PwC said.

Shedding of assets by European and some American lenders in the aftermath of the crisis gives us an opportunity to buy them selectively, Contractor said.

State Bank had 174 branches overseas as of December 31, accounting for more than 16% of its 8.7 trillion-rupee ($169 billion) loan book, the lender said.

Net interest margin on international loans will widen from a record 1.77% as the cost of dollar funding narrows, Contractor said.

Prime Minister Manmohan Singhs government, the biggest shareholder in State Bank, plans to invest R7,900 crore in the lender to boost its risk buffers. Shareholders of the bank approved the sale of preference stock to the government last month, ending a two-year wait for the funds. The cost of protecting the debt of SBI against default fell 49 basis points this year to 346, according to CMA, which is owned by CME Group and compiles prices quoted by dealers in privately negotiated markets. The swaps pay face value if a company defaults on its repayment obligations. The lender will sell medium-term notes to raise up to $1 billion after May.