Investing profitably in secure papers is the purpose of bank treasuries. And State Bank of India is doing exactly that.
The country’s largest lender is investing some part of the $1.25 billion it raised abroad in July to invest in the overseas offerings of fellow Indian lenders, to capitalise on the arbitrage window.
A top SBI official said: “It is an arbitrage opportunity and part of treasury operations. Treasury looks for opportunities to park funds in instruments that are secure and provide better returns. Instead of keeping funds idle, such transaction keeps meter on.”
The country’s largest lender, through its London Branch, raised about Rs 7,000 crore through senior unsecured bonds (overseas bonds) due 2017. Barclays, Citigroup, Deutsche Bank, JPMorgan, Merrill Lynch, and UBS were the joint lead managers and book runners for the offering.
| FOREIGN WINDOW Amount raised from overseas since July 2012 | ||
| Lender | Cash flow ($ mn) | Coupon rate (in %) |
| State Bank of India | 1,250 | 4.13 |
| ICICI Bank | 750 | 4.70 |
| Indian Overseas Bank | 500 | 4.63 |
| Exim Bank | 500 | 4.00 |
| Union Bank of India | 350 | 4.63 |
| Source: Banks | ||
There would be a churn in the investment portfolio, reflecting market opportunities and scope for deploying for long term (lending), said the SBI official.
A treasury executive with a foreign bank said some of the issuers (Indian financial sector players) had their pricing fixed higher than SBI’s pricing. This was a chance to deploy funds in instrument that gives more return than what SBI has to pay.
An SBI official said over a period the amount raised from these bonds would be deployed for lending to Indian companies for overseas mergers and acquisitions, expansion plans and external commercial borrowings.
The money would also be invested in papers floated by Indian companies.
An IDBI Bank official said: “This is commercial operation. Whenever there is a temporary surplus, banks park funds. And when yield falls, they make profits.”
Early this month, IDBI Bank raised Singapore $250 million ($200 million) through three-year bonds carrying a fixed coupon of 3.65 per cent (per annum).
The IDBI Bank official, however, declined to say if SBI invested in their paper.
Other banks had also raised funds abroad recently, mostly with coupon rates higher than SBI’s.
Bangalore-based public sector lender Syndicate Bank has plans to raise up to $500 million through medium-term notes.
