Three Indian DFIs said to plan $1.5 billion foreign debt under RBI scheme

RBI's subsidised hedging facility for external commercial borrowings lowers currency risk costs, aiming to boost dollar inflows and strengthen support for the rupee

Three Indian development finance institutions (DFIs) are preparing to raise at least $1.5 billion through foreign-currency bank loans under the Reserve Bank of India’s (RBI) discounted overseas borrowing scheme, Reuters reported on Thursday, citing sources.

 

Each of the three institutions - the National Bank for Agriculture and Rural Development (Nabard), the Small Industries Development Bank of India (Sidbi), and the National Bank for Financing Infrastructure and Development (NaBFID) - is looking to borrow at least $500 million through foreign-currency loans.

 

All three are going down the loan route instead of issuing dollar bonds because none of them has previously raised funds through dollar debt. Sources said the loan process is simpler and quicker than a debut bond issuance.

 

NaBFID begins market discussions

 

NaBFID has made the most progress and has already started discussions with potential lenders, a senior executive confirmed.

 

"We expect to raise up to $2 billion via ECBs in this financial year. At present, we are planning to raise $500 million through the ECB (external commercial borrowing) route, and we have already started our activity and are exploring in the market," NaBFID managing director Rajkiran Rai told Reuters.

 

"With the RBI window opening, ECBs work out much cheaper," said Rai adding that the total borrowing cost for the loan could be between 6.5 per cent and 7 per cent.

 

Sources also said NaBFID had raised $125 million through a smaller dollar loan tranche in March.

 

Nabard and Sidbi yet to access foreign funding

 

According to the Reuters report, Nabard and Sidbi have started preliminary discussions and may enter the overseas borrowing market within the next 30-40 days.

 

Debut bond issues seen as time-consuming

 

"There is a lengthy procedure involved in a debut dollar bond sale, and it is time-consuming. If an institution is not going to be a regular issuer like EXIM Bank, it makes little sense to choose bonds over loans," one of the sources told Reuters.

 

The source added that, based on current credit ratings, dollar loans are only slightly more expensive than bond issuances.

 

RBI incentive encourages overseas borrowing

 

Earlier this month, the RBI allowed banks and state-owned companies raising money overseas to use a subsidised hedging facility. The move reduces the cost of protecting against currency fluctuations and is part of a wider effort to attract dollar inflows and support the rupee.

 

Since the scheme was introduced, HDFC Bank, Axis Bank and Power Finance Corporation have collectively raised $1.85 billion through dollar bonds. Meanwhile, Bank of Baroda and State Bank of India are preparing similar overseas bond issuances.