Global advances fuel banks' loan books

Loan books of Indian banks with significant international operations grew sizeably in the first six months of 2007-08, despite a slower increase in domestic credit offtake compared with their peers, following a step-up in lending through their overseas branches.

In the aftermath of the US sub-prime mortgage losses, global banks had turned risk-averse causing a global credit squeeze. This forced Indian companies to turn to State Bank of India (SBI), ICICI Bank, Bank of India (BoI) and Bank of Baroda (BoB) to meet their credit requirements, particularly to fund overseas acquisitions.

The loan books of the four banks grew at over 25 per cent at the end of September over the previous year, much higher than the 21.9 per cent growth for the industry.

While, SBI, the country's largest bank, lent only Rs 2,568 crore to corporates domestically, it extended around Rs 13,000 crore to corporates through its overseas branches. As a result, the share of international advances in SBI's total loan book moved up to 15 per cent from 11 per cent.

The total advances of SBI rose 26.21 per cent to Rs 3,63,591 crore.

SBI's international advances grew to $13.8 billion at the end of September from $9.7 billion at the end of March 2007. Of this, $1.3 billion was provided for financing Tata Steel's acquisition of Anglo-Dutch steelmaker Corus.

"This partially reflects Indian corporates going abroad. We are the largest financier of mergers and acquisitions (M&As) by Indian corporates overseas.

"Internationally, spreads have become very good. They have nearly doubled, and at times trebled, because of the sub-prime crisis," said O P Bhatt, chairman, SBI, at an analysts' meet to review the bank's second quarter results.

ICICI Bank, the second-largest Indian lender, posted a 33 per cent rise in advances to Rs 2,07,121 crore during the second quarter as its international balance sheet increased to $23 billion at the end of September 2007 from $19.5 billion at the end of June 2007 and $17 billion at the end of March 2007.

The share of international banking in the bank's total assets rose to 22 per cent from 19 per cent over the first half of 2007-08.

BoI's domestic book grew by Rs 4,866 crore and its international advances also rose by a corresponding amount of Rs 4,159 crore. The bank's advances stood at Rs 95,816 crore for the quarter ended September 2007 up 27.59 per cent from a year earlier.

While Mumbai-based Bank of Baroda's (BoB) domestic advances increased by Rs 1,992.31 crore, its overseas book expanded by Rs 4,599 crore over April-September. The bank's total loan book grew 27.2 per cent to Rs 90,212 crore during the quarter ended September 30, 2007, from a year earlier.

SBI is present in 32 countries, ICICI Bank in 18 countries, BoB in 23 countries, while BoI has 22 foreign branches and three representative offices.

However, in the aftermath of the sub-prime crisis, the cost of raising funds overseas has increased by 150-200 basis points. SBI part-financed the Corus acquisition using $700 million raised in February 2007, when the cost of borrowing was lower.

ICICI Bank raised $2 billion through the issue of five-year bonds carrying an interest rate of 6.63 per cent in September. The bank will pay a coupon rate 149 basis points over the six-month London inter-bank offer rate (Libor).

"We raised $2 billion in a difficult overseas market in the face of prevailing scepticism. The call had to be taken despite the higher pricing as the other option was not to sign the deals and deny support to the Indian companies. So, we had to lend at higher rates in order to maintain the margins. Companies were willing to pay extra," Chanda Kochhar, joint managing director of ICICI Bank, had told Business Standard in an interview last month.

ICICI Bank needs to raise another $4-5 billion to achieve the target of growing its international assets to $30 billion by March 2008. The bank has already raised about $6 billion through a combination of bonds and syndicated loans this year.

Bank of India also plans to raise $1 billion for funding its international business. "We are planning to raise some bonds for five years for about $1 billion in the next 3-4 months for funding overseas business. In two-three months, the rate should be at Libor plus 0.9-1 percentage point," T S Narayanasami, bank's chairman and managing director, had said earlier.

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OFFSHORE BOOST

Loan books of four Indian banks grew at over 25 per cent at the end of September over the previous year, much higher than the 21.9 per cent growth for the industry

SBI's international advances grew to $13.8 billion at the end of September from $9.7 billion at the end of March 2007

The share of international banking in ICICI's total assets rose to 22 per cent from 19 per cent over the first half of 2007-08