BoI plans hybrid tier-II float

Bank of India (BoI) is considering raising hybrid Tier II capital in foreign currency under its $1 billion medium term notes (MTN) programme.

The bank will decide the amount and the type of the foreign currency instrument "" innovative debt or preference shares "" in the first quarter of 2006-07, chairman and managing director, M Balachandran, said.

BoI has approval to raise up to $1 billion through MTNs. It has raised $250 million thus far and used it for international operations. The public sector bank will seek the Reserve Bank of India's (RBI) approval for such capital issue after it takes a final decision, Balachandran said.

"We will look if it is possible to use our MTN facility to issue these instruments", he told reporters at a press conference convened to announce that 550 of its branches have been covered under core banking solution.

RBI recently issued guidelines allowing banks to raise tier-I and tier II capital through issue of innovate hybrid debt instruments. BoI needs the capital to support loan growth and also meet Basel II capital adequacy norms from March 31, 2007.

BoI chairman said the bank does not intend to expand it equity capital base but would look at new instruments allowed by RBI.

Referring to the pressure on liquidity in the financial system, he said the pressure is expected to ease from April. The high credit growth and redemption of Indian Millennium deposits had sucked out resources from the system.