SBI in $5 billion MTN plan

MUMBAI: In an indication of the unlimited appetite of Indian banks for resources, two of the largest banks in the country, State Bank of India and ICICI bank, have announced that they are raising more than $5.66 billion between them from markets abroad.

SBI has upsized its medium-term note (MTN) programme, listed on the Singapore Stock Exchange, to $5 billion. This is up from the original $1 billion MTN set up in November, 2004, and later raised to $2 billion in August, 2005, the bank informed the Bombay Stock Exchange on Friday.

“The programme was updated and its scope enlarged to include raising of funds for capital purposes (upper tier-II and hybrid tier-I) and for the inclusion of Nassau, or other foreign offices, including London, for the purpose of issuance of notes in October, 2006,” SBI said.

ICICI Bank also successfully priced its €500 million ($665 million) floating rate note under its MTN programme on Friday. New investors accounted for more than 50% of the deal size. 

The money raised by Indian banks abroad is often not brought directly into the country, despite banks facing a cash crunch due to runaway credit growth.

“We never bring the money here. We use it overseas for things like ECBs,” said TS Bhattacharya, managing director, SBI.  Ultimately, however, the money makes its way into India, but through a different route.

Higher interest rates here means that banks can raise money abroad at lower rates and, even after adding a premium, they could make a cool profit by using the money to lend to borrowers here.

For example, if a bank raises money in Japan at the 0.50% benchmark rate there, even after paying a premium of 1% for forward cover, it can make a cool 6% profit because the benchmark repo rate - the rate at which banks borrow from the Reserve Bank - in India is 7.50%.