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ADB, World Bank eye Rupee debt

Subhomoy Bhattacharjee in New Delhi

In a significant expression of confidence in the Indian capital markets, the Asian Development Bank and the World Bank have approached the finance ministry to raise debt of about $100 million each.

The ADB fund management team will be meeting the representatives of the Centre this week to discuss the issue. ADB is expected to hit the market in the current financial year.

Top sources in ADB said the bank's plan was in line with its long-term goal to deepen the debt market in the country. However, the World Bank proposal is at a nascent stage.

The ADB proposal envisages raising $100 million in the first phase, to be used for treasury management by the bank for investment in India's private sector and even abroad.

ADB sources said the finance ministry would have to decide whether to treat the institution as a development bank and treat it accordingly, or insist on the creation of a special purpose vehicle to raise the resources.

Since ADB enjoys a tax-free status, the ministry will have to decide if the institution's instruments can be tax-free.

The present operation is distinct from the investment made for public sector projects by both ADB and the World Bank, which come from the contributions made by member-countries through periodic replenishments.

Such investments by the World Bank in India are about $3 billion annually, while the ADB kitty has touched $1.5 billion a year in recent years.

This is the first time that any multilateral institution has decided to access the domestic capital markets. Sources said the move showed the current spread of interest rates in the domestic markets had become internationally competitive for ADB to access the market here.

While the World Bank's private sector investment is routed through the International Finance Corporation, it is not clear as to who will issue the paper in the Indian market. ADB has, however, raised debt from some other Asian countries, including Taiwan.

The resources will be raised in Indian rupees. But whether the instruments will be bonds or debentures and their maturity periods have not yet been settled.

However, in keeping with ADB's desire to broadbase the debt market and introduce new medium-term non-government debt paper, the maturity profile will be spread between three and five years. The idea was to develop the "missing market" for such paper, they said.

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