SBI mulls F&O firm buy

State Bank of India (SBI) has begun taking steps to build a strong derivatives business, which is currently dominated by foreign banks. It is considering a $200-300 million acquisition of a foreign derivatives house.

The bank has entered into an arrangement with JP Morgan Chase and DSP Merrill Lynch for sourcing complex products for its corporate clients.

SBI Chairman O P Bhatt said the bank was a player in the derivatives segment, having a tie-up with DSP Merrill Lynch. The bank is exploring various business models, including an acquisition to grow the business.

The country's largest bank is eyeing an acquisition opportunity in either Europe or New York. The bank would look at acquiring a major stake or a complete buyout of a small derivatives house. This is expected to cost the bank around $200-300 million.

The focus on growing the bank's derivatives business is a part of its bid to be a full-service bank to high-value clients, a segment that has been dominated by foreign banks and private players.

"We had not been able to fully serve large corporates due to lack of structured products and services. Also, many new business areas had bypassed us," Bhatt had earlier said.

The bank currently sources derivatives-embedded products for its corporate customers. The bank retains 80 per cent of the business, transferring 20 per cent to foreign houses under the arrangement.

SBI earlier offered simple derivative products, being an active player in the rupee interest rate derivatives market as well as foreign exchange derivatives market.

"In the first quarter of 2007-08, income from the derivatives segment crossed Rs 20 crore. This is expected to reach Rs 100 crore by the end of the year," said a senior official of the bank.

The bank's other income grew by 18.74 per cent to Rs 842.58 crore at the end of June 2007 from a year earlier.