Owing to robust demand from Indian corporates, public sector lenders Bank of India (BoI) and Indian Overseas Bank (IoB) plan to raise about $850 million from the international market through bonds in the next few months.
BoI Chairman and Managing Director Alok Misra said the bank was expanding its overseas balance sheet and there was a demand for funds. The bank has an option to raise funds under medium-term notes (MTN). It would raise up to $500 million. Another official said the timing of the issue would depend on the market environment, including the pricing trend (yield on paper and fluctuation in benchmark rates).
As on March 31, BoI’s international business comprised deposits of $10.25 billion and advances of $11.39 billion. For 2010-11, its net profit from international operations stood at $110 million.
Royal Bank of Scotland (RBS), in its Asia-Pacific credit strategy report, said overseas funding needs of Indian companies had been driving the issuing of US dollars by Indian banks. Many Indian banks reported good growth in overseas loans, as India Inc turns more aggressive in expansion and acquisitions.
Compared to domestic lending, overseas lending generates lower margins for Indian banks. However, they need to follow their corporate borrowers overseas and provide them funds, as part of their integrated service. The new supply from the Indian financial sector could reach $7-8 billion in 2011, against $6.6 billion in 2010, RBS said.
Meanwhile, IOB chairman and managing director M Narendra said, “We would definitely look at MTN for raising more funds. The interest rates are better compared to the domestic market. We may tap $350 million through the MTN route in the next three to six months”.
The bank plans to use the funds to expand its overseas business to increase its share in the overall business to 15 per cent by the end of the current financial year, against 10 per cent last year.
Last Month, the Chennai-based lender had raised $500 million by issuing senior unsecured bonds. This was done under its $1-billion MTN programme through its Hong Kong branch.
