Thursday, 12 July 2018

State Bank of India plans to raise $750 million via maiden green bonds


India's largest lender, the State Bank of India has announced plans to issue an inaugural USD benchmark green bond in the Reg S market. Green Banking and Sustainability have long been areas of priority for the lender and in an early delineation of this approach, SBI had enunciated its Green Banking Policy a decade back.

Through its inaugural green bonds launch from its London branch, SBI is seeking to raise between USD 500 million (EUR 426m) and USD 750 million.

The transaction will likely consist of two tranches and could open for subscription in the next few days, people aware of the development told the newspaper. The raised funds will be used to support investment in sustainable and climate-friendly projects.

The bank has appointed Bank of America Merrill Lynch, BNP Paribas, Citigroup, Credit Agricole CIB, HSBC, SBICAP and Standard Chartered Bank to manage the issuance. According to Business Standard, bankers will meet with investors this week. As per the Green Bond Framework, the proceeds from the bonds will be invested in research and development of ecological solutions to make this world a better place for our future generations.

The Green Bonds market as per July 2018 stands at $80 billion against $170 billion against the full year of 2017. The estimated investments in Green Bonds stand at $250 billion.

- Chaitanya Kulkarni

Thursday, 5 July 2018

Bank of China to open office in Mumbai

Bank of China office in New York.

Reserve Bank of India has issued scheduled commercial bank license to the Bank of China. Bank of China is one of China's largest banks which is set to open its first branch in Mumbai.

Prime Minister Narendra Modi had made a commitment to Chinese President Xi Jinping to allow Bank of China to set up branches in India when they met on the sidelines of the SCO summit in Chinese city of Qingdao last month. Bank of China will be the second Chinese bank to enter India after Industrial and Commercial Bank of China.

As China’s most internationalised and diversified bank, Bank of China provides a comprehensive range of financial services to customers across the Chinese mainland as well as 51 countries and regions. The Bank’s core business is commercial banking, including corporate banking, personal banking and financial markets services.

"By the end of 2017, Chinese investments into India added up to more than $8 billion, as India has become an important market for infrastructure cooperation among Chinese companies and a major investment destination," Gao Feng, Ministry of Commerce, People's Republic of China.

China had permitted Indian banks to open seven branches in China since 2006. The State Bank of India was the first to start operations in China where it has two branches. The Bank of India, the Bank of Baroda, Canara Bank, ICICI Bank and Axis Bank have one branch each.

- Chaitanya Kulkarni

Wednesday, 4 July 2018

Turnaround Strategy? LIC likely to acquire 51% stake in IDBI Bank.


In a bid to achieve targets in Operation Clean-up, the Ministry of Finance is keen to finalise the acquisition of state-owned IDBI Bank by Life Insurance Corporation of India in three-four months to ensure the lender’s balance-sheet shows an improvement by next fiscal.

The Insurance Regulatory and Development Authority of India (IRDAI) had, on June 29, given a one-time exemption to LIC to acquire a 40 per cent stake in debt-ridden IDBI Bank, taking its total holding in the lender to over 51 per cent. The acquisition will help infuse ₹10,000-13,000 crore in the bank, which had non-performing loans totalling ₹55,588 crore as of March 2018 and is under the RBI’s Prompt Corrective Action.

“IRDAI has already cleared the transaction and other approvals are also in the pipeline. The idea is that before the end of 2018, the transaction should be finalised and it should start showing results by the end of the financial year,” as reported in a corporate announcement page of BSE. The Finance Ministry is already in discussions with IDBI Bank and LIC on the timelines and proposed valuation for the acquisition.

As IDBI Bank is a listed entity, the deal is likely to take place at market value. The boards of IDBI Bank and LIC are, however, expected to come up with a final proposal on the valuation and timeline by the end of this month.

The next step is LIC has to go to its board and inform the board about the conditions under which the approval is given. What we have asked for is: what is going to be their plan for reducing the stake to 15% over a period. The government, which is the promoter of the bank, holds almost 81%. The deal, which will trigger takeover regulations, will also require an approval from the Securities and Exchange Board of India.

Interestingly, as per capital market regulations, any company that acquires 25% stake in a listed entity has to make an open offer to acquire 26% additional stake from public shareholders. SEBI is likely to waive off this requirement as it has previously done before in case for government companies.

The IRDA rules don't permit a single entity to run two separate insurance companies. With this acquisition, IDBI Bank will be a subsidy of LIC. LIC's ambition of getting into banking business may come true as LIC Housing Finance had applied for the banking license in 2014 but failed to receive RBI nod. No clear information regarding the business of IDBI Federal Life Insurance has been decided yet.

Several financial experts have opposed this deal as it needs to bypass Insurance law. The infusion of capital by LIC is a bet on NPA struck IDBI Bank as it is very unlikely to turn around the bank's books in near term.

- Chaitanya Kulkarni