Fund scarcity in overseas markets hits Indian banks

Written by Sitanshu Swain | Mumbai | Updated: Sep 27 2011, 07:54am hrs
The financial crisis in the US and Europe has hit the overseas borrowing plans of several Indian banks as there is now a severe scarcity of funds in these markets. Indian banks, particularly the ones that have operations overseas, want to take advantage of the cheaper rates prevalent in the overseas markets to raise funds but have faced roadblocks.

Yes, the rates are cheaper, but money is not available in the market, said Bank of Baroda official, which has operations in 25 countries. According to the official, thought libor rates are low overseas, banksare shying away from lending and are not participating in the syndication exercise.

Libor is the interest rate that international banks charge each other for loans (usually in euro/dollars). This rate is applicable to the short-term international inter-bank market and also applies to very large loans borrowed for anywhere for one day to five years.

The risk premium in lending is rising, making borrowing a bit expensive. We only hope that the crisis comes to an end soon and normalcy returns to the international money markets, said a senior official of State Bank of India (SBI). We need money for our overseas operations. If this situation continues, it may affect our overseas operations, he said.

A senior Union Bank of India official said that the uncertainty in the international market is visible, particularly in the banking sector, and it is not easy to access funds smoothly.

Rating agencies have started downgrading Greece banks, which will now further aggravate the woes of financial markets. The risks are rising across markets,'' said the Union Bank of India official.

Earlier, as an immediate fallout of the move to downgrade US by the international rating agency S&P, major public sector banks, including SBI, had deferred their plans to raise about $8 billion from overseas markets. Other government-owned banks to have put off their overseas plans include Indian Overseas Bank, Syndicate Bank, Allahabad Bank and Indian Bank.

Speaking to FE, SBI chairman Pratip Chaudhuri had confirmed the banks plan to postpone overseas borrowing. Nupur Mitra, executive director, Indian Overseas Bank, said the bank had put its plans to raise $200-300 million from the overseas markets on hold. When we had raised $500 million for our Hong Kong branch in the recent past, we had got a finer rate, but we are not sure of getting cheaper rates now, Mitra said.

It was earlier reported by Reuters that Bank of China, a big market-maker in China's onshore foreign exchange market, has stopped foreign exchange forwards and swaps trading with several European banks due to the unfolding debt crisis in Europe. These European banks include French lenders Societe Generale, Credit Agricole and BNP Paribas.