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Priya Nair

Mumbai , Sept 6

IN the backdrop of a slowdown in deposit growth, many banks are raising funds from overseas and domestic equity and debt markets in order to meet increasing advances and to shore up capital to meet Basel II norms.

Analysts say that banks need additional funds for technological investments as they move onto the centralised system of operations.

Many banks are borrowing funds overseas, as raising money from the domestic markets costs more.

In its Quarterly Statistics released in August 2005, the Reserve Bank of India said that the incremental growth in aggregate deposits of the top 100 centres of scheduled commercial banks was 18.7 per cent in March 2005, against 23.6 per cent in March 2004.

According to Ms Kanan Shah, research analyst with Network Stock Broking Ltd, the credit-deposit ratio is skewed towards credit and it will continue to be for some time.

"Deposit growth is not as strong as it was expected to be and lending growth is much more than expected," she added.

Bank of India is coming out with a Rs 750-crore subordinated bonds issue, with tenor of nine years and seven months, to augment its Tier-II capital. The bank will use the funds to meets its expanding credit requirements to meet the capital adequacy requirements in line with Basel II norms and to repay the earlier Tier-II capital.

Banks that are planning public issues later this year include Bank of Baroda and Union Bank of India.

A senior bank official said, "Now is a good time to raise funds because credit is expanding and interest rates are likely to go up in the medium term. We would also like to maintain our capital adequacy ratio at 11-12 per cent at any point of time, in line with Basel II norms."

Banks raising funds to meet their balance sheet requirements include Syndicate Bank, which is raising syndicated loan worth $75 million from the overseas market, and UTI Bank, which is raising a syndicated loan worth $120 million equivalent in Japanese yen.

SBI also raised its medium term notes programme from the original $1 billion to $2 billion. The programme is listed at Singapore Stock Exchange.

An official from UTI Bank said, "Raising funds abroad is a more cost-efficient way for us to raise funds."

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