State Bank of India, the nation’s largest lender, plans to buy loans from banks in the U.S. and Europe to boost its overseas credit assets and profitability.
The Mumbai-based lender is seeking to purchase loans given mostly to Indian companies, Managing Director Hemant Contractor, who heads the bank’s international operations, said in an interview yesterday.
Record net interest margin from its international loans encouraged the 205-year-old lender to seek the acquisitions and expand the business, Contractor said. Credit at State Bank’s overseas offices expanded 21 percent last year compared with a 17 percent increase locally, the bank said on Feb. 13.
“Being a state-run lender they have better access to dollar funding which gives them confidence that they will be able to widen margins further,” said Saikiran Pulavarthi, Mumbai-based banking analyst at Espirito Santo Securities.
State Bank rose 3.2 percent to 2,227.55 rupees at close in in Mumbai, the most in a month. The shares have risen 36 percent this year, the third-best performers on the benchmark BSE India Sensitive Index in the period.
European banks are trying to sell 2.5 trillion euros ($3.3 trillion) of assets as they seek to trim balance sheets amid the debt crisis, PricewaterhouseCoopers LLP said in a report on Feb. 3. While the total amount of bad loans has remained stable at about 518 billion euros in the past year, increases in Spain, Greece and Italy are offsetting reductions in Germany and Ireland, PwC said.
‘Opportunity to Buy’
“Shedding of assets by European and some American lenders in the aftermath of the crisis gives us an opportunity to buy them selectively,” said Contractor.
Net interest margin on international loans will widen from a record 1.77 percent as the cost of dollar funding narrows, Contractor said.
State Bank had 174 branches overseas as of Dec. 31, making up more than 16 percent of its 8.7 trillion-rupee ($169 billion) loan book, the lender said.
Prime Minister Manmohan Singh’s government, the biggest shareholder in State Bank, invested 79 billion rupees in the lender to boost its risk buffers in March. Shareholders of the bank approved the sale of preference stock to the government last month, ending a two-year wait for the funds.
The government will provide more funds for State Bank in the financial year started April 1 to help keep the lender’s Tier 1 capital above 8 percent, D K Mittal, banking secretary, said in an interview on March 21.
The cost of protecting the bank’s debt against default fell 49 basis points this year to 346, according to CMA, which is owned by CME Group Inc. and compiles prices quoted by dealers in privately negotiated markets. The swaps pay face value if a company defaults on its repayment obligations.
The lender will sell medium-term notes to raise up to $1 billion after May, Contractor said.
The bank is also looking to “selectively” finance repayment of Indian foreign-currency convertible bonds that are coming up this year, he said. Indian companies will have to repay $5.3 billion of convertible bonds in 2012, according to data compiled by Bloomberg.
The company expects a revival in overseas acquisitions by Indian companies to increase demand for loans, Contractor said.
Tata Communications Ltd., is seeking a loan of as much as $2 billion from atleast three lenders Standard Chartered Plc, Australia & New Zealand Banking Group Ltd. and State Bank of India, to help finance a possible bid for Cable & Wireless Worldwide Plc, a person familiar with the matter said Mar 9.