Mumbai, Sept 14: Indian banks have started late (just in 2004) in the overseas bond issuance market but have the potential to grow really quickly, observed Richard Grainger, director, debt capital markets, Barclays Capital.

“India is likely to overtake Korea as the largest bond issuer from Asia,” Grainger said, adding that from only $0.2 billion (or 0.5% of total bonds issued from Asia), bonds issued by Indian banks are now worth $6 billion (or 20% of the Asian bond market), second only to Korea.

Two of the largest banks in India, ICICI Bank and SBI, have been the largest bond issuers in Asia, with $5.5 billion and $2.5 billion, respectively.

But the surge in issuances is also froth with dangers. “There is a danger of investor capacity running out and Indian paper losing its rarity value,” he said.

The huge Indian issuance has pushed the spreads between Indian banking paper and other Asian banking paper wider by 75 basis points.

Demand for Indian corporate bonds will continue to be robust in the overseas market despite the global turmoil over the US credit market crisis.

“Indian papers haven’t suffered particularly. None of this relates to fundamental credit. Yes there are liquidity problems, spreads across the world have increased, but I don’t think that reflects anything bad about India,” Grainger said.

“India has come late but has become huge. Almost all transactions (from India) have been largely oversubscribed,” Grainger said.

Though there were some signs of saturation among investors, there is a lot of room for Indian paper to raise money from abroad.

“There is ample room for further issuances. There is no need to panic. For example, Spain’s Bank Santander has issued $72 billion bonds so far this year, compared to that the total Indian bonds issued so far this year are only $6 billion. So there is a lot of scope,” the Barclays investment banker said.

He said Indian banks would do well to explore new markets and new currencies for bond issues to get over investor saturation.

“There is a need to develop new markets, new liquidity and look at different currencies like the euro, sterling and yen. Some Asian currencies could also be looked at,” he said.