IDBI Bank is planning to raise $225 million via a loan from the overseas market. The Reserve Bank of India (RBI) has already approved the proposal, according to senior banks officials.

“The bank is talking to potential Asian and European lenders for the foreign currency loan and will finalise the deal by next week,” a senior official said.

The external commercial borrowing (ECB) market had gone dry a year ago when the collapse of Lehman Brothers resulted in severe liquidity crunch. Indian companies raised close to $25 billion in 2007-08, but after September 2008 they saw a huge drop in funds mobilised overseas.

Overseas borrowings are reviving now with a string of recent issues. The country’s largest bank, the State Bank of India (SBI), last month raised $750 million through a bond issue.

The second largest bank, ICICI Bank, too will visit the overseas market after over a year. ICICI Bank has obtained ratings from Standard & Poor’s as well as Moody’s. The bank is likely to raise around $700 million for general corporate purpose.

IDBI Bank has appointed Deutsche Bank, RBS and ANZ as the lead bankers for arranging the funds. “The bank is looking at a five-year loan for general corporate purpose,” the official said. The bank is looking at Libor (London inter-bank offering rate) plus 225-230 basis points. Six months Libor is 0.8 per cent making the total interest rate on the loan to around 4.5 per cent including one per cent of hedging cost, he said.

“Increasing number of companies are expected to take the ECB route to fulfil their loan requirements because of the easing liquidity conditions overseas and the attractive interest rates,” Nimish Shah, managing director of Fortune Financial Services India (FFSIL) said.

IDBI Bank recently raised $250 million from 21 banks through loan syndication. The bank says it initially went to the market to raise $100 million but the ECB was over-subscribed 2.5 times and hence they raised $250 million.