IOB to raise $50 million for overseas spread

Indian Overseas Bank (IOB) is to raise an overseas loan of $50 million (about Rs 218 crore) next month for its foreign branch operations.

S C Gupta, chairman and managing director, IOB, told Business Standard, "We will be raising $ 50 million in March to match our asset and liability position in Singapore and Hong Kong branches."

"We have been talking to few institutions in this regard, finalisation of negotiations will take some more time. This is actually to meet the payment of the loan raised during last year," he added. The bank had raised $50 million for its Hong Kong branch in March 2004.

The loan will be of a one year tenure and carry an interest rate of between 50 to 100 basis points over the London Interbank Offered Rates (Libor).

When asked whether the bank will use overseas borrowings for regular domestic operations, Gupta said that the bank will have to pay 10 per cent of withholding tax depending upon the country, which makes it uncompetitive.

In the domestic market, banks borrow funds from overseas to finance foreign currency loans to Indian exporters.

IOB has five overseas branches, two in Hong Kong, one each in Singapore, Colombo and Seoul. The bank has a marketing office in Dubai and has applied for a representative office in China.

IOB's operating profit was Rs 12.88 crore for Singapore branch, Rs 3.03 crore for Colombo branch, Rs 30.42 crore for Hong Kong branch and Rs 3.03 crore for Seoul branch in 2003-04.

The bank's board of directors have also approved the establishment of a financial subsidiary.

It is expected to be a broking firm which will club the selling of mutual fund products, life and general insurance policies so that it creates substantial value for the subsidiary.

The formation of the subsidiary is still at an early stage and the financial structure is yet to be identified, Gupta added.