There are stray signs that some investors have started to get worried about the capital-raising binge that Indian banks have embarked on. ICICI Bank has already raised Rs8,750 crore from investors this month; many others are to follow in its footsteps.
Bloomberg reported that the cost of buying insurance against the possibility of a default by India’s two largest banks rose sharply on Tuesday, a sign of higher risk. State Bank of India’s credit default swaps rose to a three-month high after the bank said it will raise Rs50,000 crore in the next three years. And ICICI Bank’s swaps rose to a six-month high after the government did not give it permission to sell a stake in its holding company to foreign investors.
The moot point: is the rise in the cost of the swaps company-specific, or is it part of the overall nervousness that has gripped the credit derivatives market following the troubles at two Bear Stearns hedge funds?