Bank of India likely to defer USD 750 mn bond sale plan on excess liquidity

With enough liquidity in hand due to slow credit growth, state-run lender Bank of India (BoI) is likely to defer its plans to raise $750 million in foreign currency loan under its medium-term notes (MTN) programme during this financial year.

"Since the liquidity situation is comfortable, the proposed MTN issue is not required immediately, despite the prevailing good pricing now," chief general manager RA Sankara Narayanan told PTI.

The Mumbai-based bank has a board approval to raise $5 billion through MTN beginning 2005 and has so far raised $2.5 billion.

Last November, BoI had said it was in the initial stages of raising $750 million via MTN and might do so in the fourth quarter of the financial year.

In the December quarter, BoI had reported a massive 70 per cent dip in its net profit at Rs 173 crore from Rs 586 crore a year ago, driven down by a spike in bad loans and the resultant higher provisioning.

During the quarter, the bank had raised Rs 2,500 crore additional tier I capital.

The bank is in the process of raising Rs 642 crore through preferential allotment to New India Assurance and Life Insurance Corporation, having been left out by the government from the Rs 6,990 crore capital infusion.

Bank of India Chief Vijaylaxmi Iyer during the earnings announcement had however said the bank would write to the finance ministry to re-look at the decision.

It can be noted that most banks are sitting on high cash pile in the absence of muted credit growth.

For the fortnight to February 6, bank credit grew at a muted 10.38 per cent to Rs 6,441,519 crore, according to the Reserve Bank data released last week while deposit rose 11.77 per cent to Rs 8,462,923 crore.

Bank of India's domestic loan growth in the first nine months of this fiscal stood at a low 4.3 per cent but expects to pick up in the current quarter and close the fiscal with a loan growth of 10-12 per cent.

State Bank of India, India's largest bank, had last week said it expected credit growth to be at 10 per cent this year while the second-largest lender, Bank of Baroda, is looking at a loan growth of 11-12 per cent.

SBI is reportedly sitting on a surplus liquidity of over Rs 80,000 crore as economic growth continues to be muted and private sector corporates are keeping off capex plans.