SBI mulls $500 mn MTN issue for overseas plans

State Bank of India (SBI), the country's largest lender, is considering raising $500 million (Rs2,500 crore) through issue of medium term notes next month, according to Hemant Contractor, managing director and group executive (international banking group) of the state-run bank.

''We will take a call in November and it will most likely be raised in US dollars, since most of our assets are in the US. It will be a benchmark issue, which is usually $500 million,'' Contractor said at a press conference in Mumbai on Friday.

The issue is a part of a $10 billion MTN programme the bank announced last month to further its expansion plans overseas. But the global financial turmoil could create an unviable situation for such an issue. ''Liquidity is a bit tight in overseas markets, due to which banks are not able to raise funds at the same rates as they were able to raise about 3-4 months ago,'' Contractor said.

He said today, a three-month loan would probably be priced 250-275 basis points over the London interbank offer rate, or Libor, compared with about 100 basis points earlier.

Such issues are typically priced based on the six-month Libor, which is currently at 0.61 per cent.

Nonetheless, he did not rule out the option. ''Even if you factor in the additional cost, it still makes sense for Indian customers to avail of foreign currency loans,'' he said.

SBI had raised 325 million Swiss francs (Rs1,500 crore) through an MTN issue in February. The size of the transaction was increased from an initially planned minimum of 250 million Swiss francs due to enthusiastic response from investors.