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To meet capital adequacy and diversify funding sources

Mumbai March 21 Kotak Mahindra Bank said it plans to raise $45 million (Rs 200 crore) by issuing bonds to International Finance Corporation, the private sector arm of the World Bank Group. The private sector bank will issue upper tier II subordinated bonds by way of debentures with a final maturity of 15 years.

The investment will help the bank augment its capital base and enhance the bank's long term funding resources. It will increase the bank's lending to small and medium enterprises, and for individual housing, said a statement from IFC.

The bonds qualify as upper tier II capital according to recent guidelines issued by the RBI. Mr Uday Kotak, Executive Vice-Chairman and Managing Director, Kotak Mahindra Bank, said: "IFC's quick response to the Reserve Bank of India's upper tier II guidelines will help further improve Kotak Mahindra Bank's capital adequacy and diversify its funding sources."

This is IFC's third subscription to upper tier II subordinated bonds issued bilaterally to IFC by Indian private sector banks, following transactions with HDFC Bank and ICICI Bank in recent months. "IFC's decisive responses to the Reserve Bank's upper tier II guidelines are part of the World Bank Group's strategy in India to improve financial intermediation by building capacity in private financial institutions. They also support pioneering transactions that help deepen the financial markets and broaden the financial inclusion of underserved groups, particularly SMEs," said the statement.

In 2003, IFC provided a six-year senior loan of $22 million to Kotak Mahindra Bank when it was converted into a bank from Kotak Mahindra Finance Company.

IFC said its current portfolio in India is $1.3 billion as of June 2006. India is the fourth-largest country of operations for IFC, it said.

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