State lenders plan $2 bn overseas borrowing under RBI concessional route

By Saikat Das

 

Some Indian state-run financial institutions are planning to raise overseas loans of as much as $2 billion using a central bank facility for borrowing at concessional rates, according to people familiar with the matter. 

 

Small Industries Development Bank of India is in talks with the International Finance Corp. to raise as much as $1 billion in five-year and seven-year tenors, the people said, asking not to be identified because information is private.

 

National Bank for Agriculture and Rural Development and the National Bank for Financing Infrastructure and Development are also preparing to raise about $500 million each, they said, adding the funds would be raised in the next few weeks.

 

 

The planned borrowings underscore efforts by state companies to secure long-term dollar funding at lower costs. It follows the Reserve Bank of India’s June 5 decision to allow government-owned firms a swap facility that reduces their currency-hedging costs. The funds can support lending to small businesses, farm and infrastructure sectors at a time when India’s economic growth is slowing. 

 

The institutions are targeting an all-in borrowing cost of less than 7 per cent under the RBI window and are in discussions with multiple lenders, the people said.

 

Sidbi, Nabard, NaBFID and IFC did not immediately reply to e-mails seeking comments. NaBFID is in talks with banks to raise funds through a five-year dollar loan at a total pricing of 6.5 per cent to 7 per cent, including hedging costs, Managing Director Rajkiran Rai G. said in an interview earlier this month.

 

The RBI has allowed banks and eligible companies to access its concessional foreign exchange swap facility at a fixed rate of 1.5 per cent a year. The move, aimed at boosting foreign inflows and ease pressure on the rupee, would allow firms to hedge overseas borrowings at roughly half the prevailing market cost, according to some analysts.

 

The attractiveness of the program was highlighted last week when HDFC Bank Ltd., India’s largest private-sector lender, secured its tightest-ever spread on a $750 million bond sale. Axis Bank and Power Finance Corp. have also tapped the overseas market through bond issuances under the RBI facility, while the State Bank is planning to raise as much as $1 billion.