The Hindu Business Line : Loan syndication market poised for faster growth

Growth story

Not only are more banks willing to lend to India, but the deal sizes are also increasing.

Syndicated deals for some mega power projects have been as high as Rs 20,000 crore.

Mumbai , June 18

With corporate India's appetite for funds showing no signs of abetting, the loan syndication market looks poised to increase its pace of growth from last year, say bankers.

The number of participants in the syndication market is increasing, as banks from newer areas such as Japan and Korea want to lend to Indian corporates. Not only are more banks willing to lend to India, but the deal sizes are also increasing. This is because the India growth story is still strong, say bankers.

"The loan syndication market characteristic is changing. Smaller deals are happening easily through bilateral deals. This has led to bigger deal sizes and more participants in syndication," said Mr Vishwavir Ahuja, MD and CEO, Bank of America. Bank of America loan syndication contributes 15 per cent of the total income.

Syndicated deals for some mega power projects have been as high as Rs 20,000 crore, says Mr M.M. Agarwal, President, Capital Markets, UTI Bank. In case of refineries of large capacity, the deals could run into lakhs of crores. UTI Bank, which had done Rs 10,000 crore worth term loan syndication last year, is looking to increase to Rs 15,000-20,000 crore," Mr Agarwal said.

According to Mr Hitendra Dave, co-head, global markets, HSBC, international lenders are willing to lend to Indian companies because there is still tremendous amount of money floating around and not enough deployment avenues.

SBI Caps has been a leading player in the Indian loan syndication market. It has been ranked first in Asia-Pacific for project finance syndication by Thomson Project Finance International. Realising the huge potential in the loan syndication market, the investment bank recently tied with IDFC for syndication of debt financing of infrastructure projects.

Some Japanese banks lending to Indian corporates are the Sumitomo group and Mizuho group.

Also, the competitive interest rate offered by overseas lenders is an added attraction for Indian corporates.

"Local lending rates have gone up sharply because of the rate hike and banks running out of capital. So, the difference between domestic and overseas rates can be as much as 75-100 basis points on a full currency swap loan," Mr Dave said.

As risks of lending increase due to rising interest rates, banks are also looking at loan syndication as an important contributor to their fee income.

Mr Dave expects the onshore syndication market to grow 20-30 per cent and the offshore market to grow over 30 per cent this year, in line with the market growth.