ICICI Bank is preparing to return to the international debt market with its first US dollar bond issuance in nearly nine years, following fellow lenders HDFC Bank and Axis Bank which have accessed dollars from abroad through the Reserve Bank of India's concessional foreign exchange swap program. Banking sources estimate that the private lender will need to raise at least $500 million from a potentially five-year dollar bond.

Key Highlights

• ICICI Bank plans to raise at least $500 million through its first dollar bond since 2017.
• RBI’s concessional swap facility is encouraging Indian banks to tap cheaper overseas dollar funding markets.

The proposed fundraiser is likely to occur in the second half of August, when the bank awaits its June-quarter financial results and the expiration of its Global Medium Term Note (GMTN) programme to initiate the issue. Several regulatory and procedural formalities are yet to be completed before the transaction can go through, bankers with knowledge of the matter said.

The sale will be ICICI Bank's first U.S. dollar bond sale since a $500 million 10-year bond sale in December 2017 with a 3.80% coupon.

Also Read: Indian Bond Market Sees Rs 32,630 Crore Foreign Inflows Post Reforms

RBI's Swap Facility Boosts Overseas Fundraising

The planned issuance ICICI Bank comes after the RBI announced introducing a subsidised forex swap facility for banks and select state-owned entities (SOEs) for some external commercial borrowings (ECB). The facility provides for the ability to hedge foreign currency borrowings with a fixed annual hedging cost of 1.5% which would greatly reduce hedging costs and the economics of overseas debt issues.

It has helped Indian lenders tap into international capital markets already. HDFC Bank was the first bank to use the facility with a $750 million bond sale that lasted five years, while Axis Bank has sold $800 million in dual-tranche dollar bonds.

Lower hedging costs should make borrowing from overseas more appealing to financial institutions in India, which are looking for new sources of funding as well as growth in credit and their balance sheets. As ICICI Bank gears up to go back to the dollar bond market, the RBI's new measures are starting to change the contours of foreign currency borrowing by India's banking system. It is now starting to redefine how foreign currency is being raised by India's banking system with ICICI Bank preparing to go back to the dollar bond market.