Dollar Lending Expanded

Prime beneficiaries of the dollar loans scheme would appear to be the big corporate houses, with sufficient in-house expertise in risk management the dollar liabilities will have to remained uncovered for the economics of the deal to work. However, these corporates have the option of raising dollars through plain external commercial borrowings (ECB) or as floating rate notes. Either way, for the best corporates, their costs are less than 200 basis points over LIBOR. True, there are hassles involved in the various government permissions, as well as the cap on ECBs, which limit corporates options. The smart ones, therefore, borrow dollars from the financial institutions and get a competitive rate. Indeed, it is the small and medium corporates which tap the FIs dollar lending window to a larger extent, for the simple reason that they would have to pay a much higher interest rate if they had ventured into the ECB market on their own account. Now that they have 20 or more banks offering the same facility, the demand for dollar funding may spread out more evenly but it is unlikely that the market itself will expand phenomenally.