SBI picks banks for dollar bond sale: Sources

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State Bank of India plans to raise at least $500 million through a five-year overseas bond sale as soon as July, two sources with direct knowledge said, potentially reopening the dollar bond market for Indian issuers after a lull of four months.

The country's biggest lender has hired Citigroup, Bank of America Merrill Lynch, Barclays Capital, Deutsche Bank, JP Morgan and UBS for the issue, said the sources, declining to be named as the process is not public yet.

SBI, which last sold overseas bonds in early 2011, will launch the issue depending on market conditions, and is working out a schedule for investor meetings, the sources said.

In the past few months, Indian companies have refrained from

issuing dollar bonds as a surge in risk aversion has made it more expensive for them to come to market.

In March ICICI Bank, the country's biggest private-sector lender, hired four banks for a dollar bond issue but has not launched the deal as volatility in the eurozone put the brakes on deal flows.

The last two dollar bond sales from India were in February, when energy conglomerate Reliance Industries raised $1 billion, followed swiftly by Axis Bank with a $500 million issue.

SBI hiked its deposit rates at the weekend suggesting costs of funds will remain elevated for banks, helping to make overseas borrowing attractive as cash in the domestic banking system cash is expected to remain tight.

SBI was downgraded in October by Moody's Investor Service, which cited a thin capital base and worsening asset quality.

The government pumped Rs 79 billion into the bank in March and higher profits helped it boost its capital adequacy ratio.

In June, SBI chairman Pratip Chaudhuri told reporters that the lender planned to raise $1-$2 billion from overseas markets in the next three months.

SBI officials were not immediately reachable for comment.

Earlier this year, state-run Indian Overseas Bank picked seven banks to raise $500 million through bonds from the overseas markets.

Indian companies including Union Bank of India, UCO Bank, Jindal Steel and Power and Power Finance Corp are also looking to issue dollar bonds, sources have said.