SBI to raise $3-$4 bn offshore this year; cuts loan outlook

SBI to raise $3-$4 bn offshore this year; cuts loan outlook

Mumbai: State Bank of India (SBI) will raise $3 billion to $4 billion in offshore debt in the current fiscal year and plans to enter the domestic bond underwriting business as it looks to cement its position as the country’s top lender, its chairman told Reuters on Thursday.

The state-controlled bank, however, has cut its loan growth target to 17-19% for the fiscal year that began in April, from a forecast of 20-22% made in January, as rising interest rates curb borrowing, Pratip Chaudhuri said in an interview.

“Loan growth, I think, after the rate hike, we would not be very ambitious," he said.

“We expect some deceleration in the term loan segment and some shifting of demand from rupee to external commercial borrowings," he said.

Indian banks’ loans grew at 21.4% in the year that ended March 2011 and most banks have forecast credit growth of 18-22% in the current year.

The Reserve Bank of India (RBI) this month raised its key interest rates by a larger-than-expected 50 basis points to battle stubbornly high inflation. It was the central bank’s ninth rate increase since March 2010.

Following the RBI’s tougher-than-expected move, several banks including SBI raised their lending and deposit rates.

Of the bank’s planned overseas fund-raising, $1 billion to $1.5 billion is expected around July, said Chaudhuri.

Chaudhuri, who assumed the top position at SBI a month ago, has lined up a series of new initiatives to propel the bank’s growth.

“We seem to be ceding ground in some of the areas. So it would be our strategy to block those where we are losing ground and some of the other banks are making inroads," he said.

SBI, which along with its associates controls about a quarter of Indian bank loans and deposits, is looking to re-strengthen its retail deposits, shore up its presence in the project finance space and make some organizational changes.

The lender also plans to start its rupee bond underwriting business in three to four months.

It aims to raise its market share by a percent every year from 23% now, including associates, Chaudhuri said.

SBI is also cutting down on unsecured personal loans to safeguard against the threat of rising bad loans in a high interest rate environment and expects net interest margin to “improve" to around 3.5% in the current year. Previous-year results will be released on 17 May.

“We are more on the working capital side and less on the term side. So once we increase our term loan book and try to shrink or not to grow the working capital book as aggressively, this would improve (NIM)," he said.

“And even on the home loans the pricing has become more aligned to the costs," he added.

Overseas plans

SBI, which has a branch in Sydney, is in advanced stages of opening a subsidiary in Australia to tap the retail market, Chaudhuri said.

Its global loan book stands at $32 billion to $34 billion and is likely to grow by another $5 billion to $6 billion in the year ending March 2012.

SBI’s international services include trade financing, corporate lending, loan syndications, merchant banking, handling letters of credit and guarantees and providing short-term financing. It also provides retail banking services in some countries.

A source had told Reuters in March that India’s top lender planned to spend roughly $200 million on an overseas acquisition and will mainly focus on banks with strong corporate banking services in Africa and Southeast Asia.

However, Chaudhuri told Reuters SBI was not pursuing a planned acquisition in Indonesia due to regulatory hurdles.

“In Indonesia we already have a bank and we were trying to expand that by buying another bank but we are slightly disappointed by the regulatory process and the time taken to navigate that. So, that’s why we are not very actively pursuing it," he said.

SBI also plans to open branches in Jeddah and Qatar.

Shares of the bank, valued at around $38 billion, have fallen nearly 6% so far this year, roughly in line with the fall in the BSE Bank index. The broader 30-share benchmark BSE index has fallen by 10% in the same period.

On Thursday, they were trading down 1.5% at Rs2,635 in a weak Mumbai market that was down 1.3%.