ICICI Bank Ltd, which raised $5 billion (Rs20,500 crore) last month in India’s biggest share sale, is borrowing a record $1.5 billion to fund growth in demand for credit, said chief financial officer Vishakha Mulye.
ICICI is seeking the biggest loan by an Indian bank to meet credit expansion of as much as 30% in the fastest-growing major economy after China. The amount is almost twice the syndicated borrowings of Indian banks this year and shy of the $1.86 billion total loans Mumbai-based ICICI took out in 2006. “Credit is expected to grow at 20 to 30%,” Mulye, 38, said in a phone interview. “We see a robust growth in each of our businesses.”
The loan will take the amount of money ICICI has raised this year to $10.5 billion, enabling it to boost lending to Indian companies and the nation’s swelling middle class. The bank has sold $4 billion of bonds since January.
ICICI’s borrowing “is required to feed the growing demand for loans in the country,” said Sudhindra Ballal, who helps manage $150 million of Asian assets, including Indian equities, at Daiwa Asset Management in Singapore. “There is a lot of potential.”
India’s $854 billion economy expanded 9.4% in the fiscal year ended 31 March, the most since 1989. The International Monetary Fund (IMF) expects India to overtake South Korea this year as Asia’s third biggest economy, behind Japan and China. ICICI almost tripled its balance sheet to $62 billion in the five years to 31 March, according to data compiled by Bloomberg. The bank has said it will increase assets by as much as 30% this year.
“The group seeks to exploit all capital market channels to fund both domestic and offshore expansion,” said Brett Williams, Hong Kong-based director of fixed income credit research at BNP Paribas SA.
ICICI has asked banks to send in proposals for the $1.5 billion loan, showing different scenarios for raising the funds in maturities ranging from one year to 10 years, Mulye said.
“We have to decide on the exact amount, timing, tenor of the loan and the banks,” Mulye said on Thursday. “We will probably take a decision in the next week.” The loan will be 50% more than ICICI’s previous record for an Indian bank, which was denominated in yen. ICICI borrowed from a group of 26 banks including Bank of Tokyo-Mitsubishi UFJ Ltd, HSBC Holdings Plc. and Standard Chartered Plc. in December 2006. Indian banks have borrowed $795 million so far this year. They took out more than $3.8 billion in loans last year and $3 billion in 2005.
“Debt financing remains a tax efficient alternative to equity, at least until indigestion in the bond market makes them indifferent to equity financing,” said BNP’s Williams. “Given the extent of expansion ambitions, the banks need to exploit all available options.”
HDFC Bank Ltd, UTI Bank Ltd and State Bank of India are planning to sell shares to meet the rising demand for loans. Infrastructure Development Finance Co. raised $519 million selling shares this week to fund public works. Indian bank lending to consumers and companies grew more than 30%, the fastest pace in three decades, in each of the last three fiscal years. The nation’s banks need Rs50,000 crore this year to bolster capital, banking secretary Vinod Rai said on 19 April. India’s middle-income group is contributing to growth in consumer loans by buying more capital goods, said Daiwa Asset Management’s Ballal.
There will be 351 million middle-income Indians in 65 million households by 2010, up from 40 million households, according to estimates by McKinsey & Co.
Funds raised from the IPO and loans will also help ICICI meet the new central bank rules on capital adequacy designed to comply with Bank for International Settlements standards, said Ballal.
ICICI’s overseas units are expected to contribute 25% of its revenue within the next three years, up from 17%, according to CEO Kundapur Vaman Kamath.