Dollar borrowings by banks on the rise, says Kochhar

Written by Sunny Verma | New Delhi | Updated: Mar 7 2012, 06:40am hrs
Indian banks and corporates are increasingly borrowing in dollars to take advantage of the global liquidity. Overseas borrowings have become particularly attractive now with developed countries having near-zero interest rates, while the domestic debt is available at peak rates. This has widened the interest rate differential sharply, creating an opportunity to borrow in dollars.

ICICI Bank, which launched a debt fund along with three other financial institutions, is optimistic on raising dollars loans that the debt fund will then on-lend to local companies. "We will raise both rupee and dollar funds for the IDF, but the focus, of course, would be get as much dollars as possible because that will be much cheaper," said ICICI Bank MD & CEO Chanda Kochhar. The debt fund plans to leverage up to $2 billion.

She said for Indian companies a dollar loan is currently much cheaper than a rupee loan even after accounting for the hedging & transaction costs. External commercial borrowings are also rising as corporates raise funds to benefit from lower rates, and to repay their existing debts.

Suzlon Energys European subsidiary last week secured financing of $750 million from European banks. Indian companies raised more than $ 2 billion through dollar bonds in 2012, with Reliance Industries alone selling $1-billion worth of 10-year dollar notes last month.

While there are a lot of uncertainties in the global environment, we also need to remember that there is ample liquidity in the global economy currently. And India is one of the few growing economies where foreign funds are looking to invest in, Kochhar said.