The cost of borrowing for Indian banks in the overseas term money market has gone up by about 50 basis points since last Monday, a senior State Bank executive said. Bank of India chairman MG Bhide confirmed the northward drift of Indian banks' borrowing costs. "The cost has gone up since the beginning of the week following Moody's downgrading of India."

The SBI has decided to pass on the burden to its clients. "Overnight money is still available at the old rate. However, three-month and six-month money is costing us about 50 basis points more. We have decided to pass it on to the clients," the State Bank executive said.

"There is nothing to panic. In the Asian market and the Middle East, banks are coming forward to lend money.``The US and European banks have jacked up the rate marginally. Money is available and that is important. In 1991, when India was downgraded, nobody wanted to lend money to Indian banks," another senior banker said.

Among other Indian banks with foreign operations, Bank of Baroda has, by and large, remained unaffected since it has a comfortable liquidity position overseas.

Moody's downgraded India's sovereign rating on June 19. The foreign currency country ceiling for long-term debt and notes has been downgraded to Ba2 from Baa3 and short-term debt rating to `not prime' from prime-3.

In an immediate reaction to the downgrading, the spreads on Indian paper abroad widened, the cost of external commercial borrowings (ECBs) went up substantially and the interest rates on term money overseas headed upwards.Till June 19, the cost of three-month and six-month money in the term money market was pegged at about 10-15 basis points over the London inter-bank offered rate (Libor). It has now gone up to about 60-75basis points over Libor. Overnight money is still available at the old rate (Libor) as this does not involve any risk, the State Bank official pointed out.

According to sources in Bank of Boroda, it has placed over Rs 6,700 crore worth of foreign currency abroad and has no liquidity problems. "We are a net lender in the overseas market and we expect there will bo no problem on the liquidity front," a BoB official said.

The State Bank, which has $4 billion worth of foreign assets, however depends on the money market to plug temporary asset-liability mismathces. According to sources, State Bank's primary deposits take care of about 35 per cent of its assets while reciprocal money lines - with foreign banks - contribute substantially towards its resources.

"Our dependence on period money is not too much but when the cost of the funds goes up, we are left with no choice but to jack up the lending rates," bank sources said. The SBI's overseas assets primarily consist of trade finance with maturity periodsranging from six months to six years.