The country?s largest lender, State Bank of India (SBI), will soon tap the overseas markets for an amount of between $3 billion and $4 billion with a view to funding its international operations. The borrowing will be done in tranches with the first tranche expected in July.
?The idea is to tap the markets over the course of the current year and draw down the funds gradually in the pocess growing the balance sheet,? SBI chairman Pratip Chaudhuri told FE on Thursday, adding that there were business opportunities to be cashed in on.
At present, SBI?s balance sheet overseas is roughly of the order of $34 billion having grown from just $7 billion in 2005. The bank is targetting a growth of about $6 billion this year or roughly 18%. Chaudhuri explained that the bulk of the borrowings would be in made in dollars saying that the loan markets seemed conducive for borrowing with interest rates fairly stable. ?We have borrowed a small amount through Swiss Francs some time back and we may also borrow some part in euros but by and large we would be tapping the dollar market,? he said. The lender, which will announce its annual results for 2010-11 on May 17, is poised to report a consolidated profit after tax of around R13,000 crore.
Given its top notch rating, bankers expect SBI to be able to borrow at attractive rates with spreads expected to be finer by at least 25-50 basis points than those available for smaller Indian banks. With abundant liquidity in markets abroad, several Indian banks have tapped the market over the last twelve months and between them would have mopped up close to $4 billion through medium term notes (MTN), most of which have been listed. Recently Union Bank and Syndicate Bank have raised money through the route.
Says Hemant Mishr, MD-global markets, Standard Chartered Bank, ?There is plenty of liquidity and given that we are seeing some rotation of money from equity to fixed income, there is appetite for paper.?
Adds Hitendra Dave, head of global markets, HSBC, ?Liquidity remains very supportive, and therefore, investors continue to look for quality paper including paper from emerging markets especially India.?
In October last year, Reliance Industries, through it wholly-owned subsidiary Reliance Holding USA, raised $1 billion at 4.50% in the form of guaranteed senior notes. It also raised thirty year bonds collecting $500 million at 6.25%.
Thirty-year bond issue caused a stir in the markets because they were priced at yields lower than US companies with comparable debt ratings, indicating that investor perceptions of India?s corporations had improved significantly.
While SBI has said that it would explore both organic and inorganic options to fulfil its aspirations to be a global retail bank by 2013 and rope in McKinsey & Company to help it restructure the international banking group (IBG), Chaudhuri has clarified that SBI would acquire a bank only if valuations were reasonable.
In 2006, SBI had acquired the Indonesian bank, PT Bank IndoMonex. The bank has successfully launched and scaled up retail operations in Singapore and now plans to replicate this in other geographies namely, Bangladesh, Bahrain, South Africa, UK, Canada and US.
McKinsey is working with SBI executives in Bahrain for a roll out of retail services there. SBI is hoping to earn 25% of its business from overseas operations in the next three years. At present, the bank?s overseas business, comprising 150 branches, contributes 16% to the bank?s total business, compared with 12% a year ago.