Mumbai Corporate borrowers are shifting from dollar loans to rupee loans, which have become costlier in the wake of the US Federal Reserve’s aggressive rate hike, said two bankers familiar with the developments.
According to bankers, a one-year dollar loan is now priced 60-65 basis points (bps) higher than a rupee one loan after hedging. As the tenure increases to 3-5 years, the interest rate differential reduces to 25-50 bps. One basis point is one hundredth of a percentile.
“Corporates follow a calibrated approach while borrowing in terms of tenor, rating and their end use requirement. Shankar Subramaniam, India Head of Corporate Banking at Bank of America said, “If the requirement is for short-term loans, they are going for Rs. Loans. Extending the tenure opens up more options for borrowers, he added, Most of the funds raised are for working capital requirement or refinancing. We haven’t seen much borrowing for the capital expenditure requirement.”
Bankers say most of the demand was witnessed during the first half of the year before the rate hike cycle started. According to Reserve Bank of India data, companies raised external commercial borrowings (ECBs) of $22.87 billion during the January-August period this year, down 13.3 per cent from $26.3 billion raised during the same period last year.
Rising interest rates in advanced economies, a falling rupee and stiff competition among Indian banks for corporate loans have led to better pricing of rupee loans, forcing companies to shy away from going for ECBs. The decline in funds raised as ECBs comes despite temporarily capping $750 million per fiscal year to $1.5 billion under the automatic route, and raising the overall cost limit under the ECB framework by 100 basis points as well. Used to be.
“There are several reasons for the decline in dollar lending. Clearly, the major reason is the rise in USD risk-free rates, which is rapidly increasing the overall cost for borrowers. This, in recent months, has increased credit spreads in offshore markets. The growth as well as the difference between INR lending on a hedged basis, is why many borrowers are increasingly turning to domestic markets, which have shown resilience and adequate liquidity,” said Commercial Banking of HSBC India Chief Rajat Verma said.
Verma said that in the domestic market, there has been increased competitiveness in pricing for corporates with good credit ratings, both large and small. “We have observed that sectors with high leverage requirements, such as NBFCs and infrastructure companies, still need to continue to diversify their liability mix through a combination of onshore and offshore markets.”
catch all corporate news And updates on Live Mint. download mint news app to receive daily market update & Live business News,