Mumbai: State Bank of India (SBI), the country’s largest lender, said on Thursday that it is seeking to raise an additional $5 billion from an overseas fund-raising programme through the issue of dollar bonds, twice the earlier limit of $5 billion.
The lender has doubled its medium term notes (MTN) programme to meet an increasing demand for high-value loans from Indian companies.
An MTN programme allows a bank to raise funds on an ongoing basis through different products such as floating rate notes and fixed rate bonds.
“The programme has been upsized from $5 billion to $10 billion,” SBI said in a note to the Bombay Stock Exchange.
Mint had reported SBI’s plan to expand the MTN programme to $10 billion on 24 March.
Typically, investors in such dollar bonds are other banks, insurance companies, hedge funds and private equity firms.
“The scheme has been upsized to expand our overseas loan book. This money will be used to give loans mainly to Indian companies operating abroad,” a SBI official said, requesting anonymity.
Under its existing MTN programme, which was launched in 2004, SBI has so far raised $4.1 billion.
In February, the lender raised 325 million Swiss francs. It has also raised at least Rs5,000 crore through two rounds of retail bond issues this year in the domestic market.
The coupon for bonds issued under the MTN programme is calculated based on the prevailing spreads above the five-year, mid-swap or US treasury rate, depending on the market where the bank raises money.
Mid-swap is the equivalent of the London inter-bank offered rate for longer maturity bonds.
Banks tap such capital as it’s cheaper than the home market.
Generally, banks go for such funds only when they have a strong credit commitment from companies. Otherwise, the carrying cost of such a large amount of money could hurt profitability.
Other banks, including ICICI Bank Ltd and Axis Bank Ltd, have raised at least $1 billion each through MTN issues. Bank of India, IDBI Bank Ltd and Bank of Baroda, among others, have also raised money overseas through similar issues.