A week after global credit rating agency Standard & Poor’s raised India’s foreign-currency rating to investment grade, a clutch of Indian banks is preparing to take advantage of this upgrade. They are expected to raise $10 billion from the global bond markets in 2007, a little over double the $4.26 billion they raised in 2006.
The money will be used to fund the rupee loans of Indian companies and fund the international operations of these banks.
India’s largest bank, State Bank of India, has hired investment banking majors Barclays, Citigroup, Deutsche Bank and HSBC to manage the sale of their dollar-denominated bonds. Other large banks like Bank of Baroda, Bank of India, UTI Bank and IDBI Bank are expected to hit the markets in the coming weeks with their bond offerings. Banking sources say that two other public-sector banks—Canara Bank and Punjab National Bank—are finalizing plans to sell bonds as well.
Explains Ananda Bhowmick, ratings analyst at Fitch Ratings, “The medium-term note market is a much more matured and well-understood market overseas, and has been catching up with Indian banks, which are in need to boost their capital requirements. Demand for these bonds is expected to be good as an S&P upgrade also broadens the interest of international investors for these dollar-denominated bonds.”
Most of these bond offerings will be part of an umbrella programme—called medium-term notes (MTNs)—and will have an average maturity of five years. These notes could be used to prop up bank capital in various forms.
In January 2007, ICICI Bank had used this facility to raise $2 billion in dollar-denominated bonds.
A spokesperson of the Singapore Stock Exchange, which has become a choice destination of Indian banks, told Mint that apart from large Indian banks such as ICICI and SBI, Canara Bank, Exim Bank and Bank of India have also filed prospectuses for raising MTNs between December 2006 and February 2007. Says R.V.S. Sridhar, vice-president at UTI Bank, “Indian banks are now finding it easier to sell dollar-denominated bonds in other markets with a sentimental boost by S&P. This upgrade has given them better bargaining power when it comes to pricing of the bonds. MTN programmes are becoming critical for Indian banks as they need to meet the capital requirements of corporates.”