The Hindu Business Line : Banks getting finer rates on overseas loans

INDIAN banks are getting better rates on their overseas borrowings, thanks to the strong credit rating enjoyed by the country and some of the domestic banks.

According to bankers, they are now being offered credit by foreign banks at 10 to 15 basis points lower compared to a year ago. Indian banks normally borrow long-term money for their overseas operations and raise short-term debt for on-lending to exporters. Last year, the average rate for a short-term loan was 40-45 basis points over the London Inter-bank Offered Rate (LIBOR). This year, the spread has fallen to around 30 basis points or lower, the bankers said. As on July 4, the six-month $ LIBOR was 3.73.

Agreeing that there has been a fall in the spreads in the first quarter of 2005-06 as compared to the last quarter of 2004-05, Mr Cherian Varghese, Chairman and Managing Director, Union Bank of India, said, "We see that the mark-up over LIBOR has been gradually coming down when we borrow money abroad. "This is because the perception of the Indian economy itself has improved. Indian banks are also considered to be better and there is greater realisation that banks can weather the storm of prudential norms and non-performing assets." Union Bank had borrowed $280 million last year and about $265-270 million in Q1 2005-06.

An analyst at an international rating agency said Indian papers were commanding very good prices because of the inherent interest in the economy. India is one of the few countries where the local currency and foreign currency enjoy more or less the same rating. This is due to the country's strong foreign exchange reserves and low foreign debt, he said. An officer from Bank of Baroda also agreed that there had been a decline of at least 10 basis points in the rates. He said, "The rates vary from bank to bank and depend on how bullish the lending bank is about India and the borrowing bank. But the general trend is that rates are falling because the perception of India has improved." Bank of Baroda had raised about $150-200 million worth foreign loans in 2004-05.

The main advantage for Indian banks in raising money overseas is the low cost. "We can borrow up to 25 per cent of our net worth overseas and convert it into rupees. If we take forward cover, there is a cost advantage for us. It is slightly better than raising term deposits here," Mr Varghese said.

Article E-Mail :: Comment :: Syndication :: Printer Friendly Page

Stories in this Section
Banks getting finer rates on overseas loans

Rupee firms up; securities weak

IFFCO-Tokio, Janakalyan Bank pact

PNB open to shedding stake in UTI MF

PNB opens ATM at Kottakkal

Oriental Bank dividend to Govt

IL&FS offer subscribed 29 times

Will RBI signal firmer rates in Q1 review?

Advisory panel on monetary policy set up

Madras HC asks debtors to repay banks in time

`NPA management must focus on recovery'

Kerala, Karnataka to sign MoU with RBI on urban co-ops