SBI plans to raise $700mn overseas

The country's largest lender State Bank of India would raise $700 million by March through bonds overseas, chairman and managing director O P Bhatt said today.

He said the bank may go for aa follow-on public offer in 2007-08.

"The bank will raise $700 million by March through long- and medium-term bonds," Bhatt told reporters on the sidelines of finance minister P Chidambaram's meeting with public sector bank chiefs. The borrowing is part of the $2 billion medium term note programme of SBI.

On equity sale, he said it could be a combination of both public offer and rights issue.

"We have plans to come out with a public offer in the next fiscal, however, we still have to finalise the details," Bhatt said.

On interest rates, he said the bank will be able to maintain net interest margin of 3 per cent for 2006-07. The bank's asset liability committee will review interest rates other than housing loan rates, he said.

Bloomberg adds: State Bank of India (SBI), the country's biggest bank, hired Barclays Plc and Citigroup Inc to sell dollar-denominated bonds, less than a week after Standard & Poor's (S&P) raised its ratings to investment grade.

Deutsche Bank AG and HSBC Holdings Plc will also manage the sale, SBI's first of hybrid bonds, which are securities that combine the characteristics of debt and equity.

The four banks will also arrange a sale of five-year notes, according to a document sent to the investors. The amounts have not been determined.

SBI, which has 100 million customers, may cut its debt costs after S&P raised the Mumbai-based bank's rating one rung on 30 January to BBB-. The bank is raising funds to meet new Central bank rules on capital levels and meet demand for loans. The Reserve Bank of India (RBI) on 21 July permitted banks to increase capital by selling debt overseas.

"After the ratings upgrade, the issuer now definitely has more bargaining power when it comes to pricing the bonds," said Ken Hu, who helps to manage $100 billion at First State Investments in Hong Kong. "Demand for this deal should be good because the ratings upgrade broadens international investors' base for Indian bonds."

Arun Shandilya, State Bank of India's chief financial officer in Mumbai, was not immediately available to comment. SBI last month increased $300 million of bonds it sold in December to $500 million.

The five-year floating-rate notes pay half a percentage point more than the three-month London interbank offered rate, a benchmark for corporate borrowing, according to Bloomberg data. Three-month Libor, was set at 5.36 per cent on 2 February.