Is offshore bond market turning sour for state-owned banks?

MUMBAI: One of the unintended fallouts of the clean-up of state-owned banks is that for the first time in about four quarters they would have gone without raising a penny in overseas bonds denominated in US dollar, euro and the yen.

Banks’ reluctance to raise dollar liabilities and the high yield demanded by investors were the deterrents.

Last April, they had raised $747 million before the lull, show data from Dealogic, a global data analytics company. Indian public sector banks have not gone for offshore issuances this year.

Such a long interval has never happened in history barring in 2008, when the Lehman Brothers collapsed, sparking a global crisis.

“During the period, global investors mostly shied away from emerging markets,” said Sunil Jhaveri, chairman, MSJ Capital & Corporate Services. “This coupled with a series of rating downgrades of state-owned banks, burdened with bad loans, have certainly dented investor sentiment.”

About two weeks ago, rating company Crisil downgraded debt instruments of eight public sector banks (the rating on one bank has been placed on “Watch negative”), and revised its outlook on five others to ‘Negative’ from ‘Stable’.

Those include Allahabad Bank, Andhra Bank, Bank of Baroda, Bank of India, Bank of Maharashtra, Canara Bank, Central Bank of India, Corporation Bank, Dena Bank, IDBI Bank and Indian Bank.

Intensifying asset quality problems at public sector banks have the potential to impair their credit risk profiles, said the rating company, which earlier downgraded or revised outlook for another nine such lenders.

“Amid uncertainties, investors are clearly reluctant to bet on state-owned banks. But they are ready to lend to private sector banks,” said an investment banker associated with offshore fund raising via bonds. The person did not wish to be identified.

A few weeks ago, largest private sector lender ICICI Bank raised $500-700 million from its Dubai International Finance Centre.

“Some of the banks started tapping the bank loan market through bilateral or club or syndicated loan to reduce the borrowing costs,” said IDBI Bank chief financial officer NS Venkatesh. “We are seeing signs of yields coming down and the situation normalising within a month.”

Earlier in January, HDFC Bank and Exim Bank (not an usual government-owned commercial lender) too have raised some funds, according to Bloomberg data.