MUMBAI, June 18 -- State-owned Bank of Baroda is preparing to raise about $500 million through a dollar-denominated bond sale as early as next week, three people familiar with the matter said. This would make it the second Indian lender to tap overseas markets after the Reserve Bank of India's recent incentives to boost foreign-currency borrowing.

"They (Bank of Baroda) have received board approval of up to $1 billion. So, since large transactions always happen at $500 million and above, they will hit the market with $500 million mostly," a merchant banker said on the condition of anonymity.

The proposed bond is likely to carry a five-year maturity and price at about 90 basis points over comparable US Treasury yields, market participant...