Bank of America (BoA), the largest US bank has cautioned that the ongoing global financial crisis is impacting the Indian banking system in many critical ways.
?There have been a major concerns about counterparty and bank risks,? said Rajeev Bhargava, head, global products solutions (India), BoA.
Though there have been no specific instances of Indian banks facing counterparty risks, the earlier way of trade financing is changing, he said.
?Most banks are now preferring old and traditional ways of doing trade financing as credit tightening is impacting global trade. Traditional trade finance instruments such as letter of credit and avalisation and conformation requests are back in vogue,? explained Bhargava.
In the changed circumstances, banks are taking a flight to quality as traders are looking at payment guarantees from premier and stronger banks.
?We are seeing a surge of trade finance requests,? he revealed.
Besides India, Australia and Hong Kong also witnessed the maximum decline in syndicated loan volumes during the nine months-ended September 30, said, Asit Bhatia, managing director, global corporate and investment, BoA.
According to him syndicated loan volumes in India have declined by nearly 46% in the nine-month period ended September 30, compared to the year-ago period.
?Loan volumes have come down significantly during the past one year from around $30 billion to around $15 billion this year. Given the present global turmoil, this situation is likely to prevail in the near-term,” Bhatia said. Fund-raising activities may become worse in the fourth-quarter of 2008 as the loan market continues to weaken as priorities shift to preserving capital, Bhatia said adding that the recent measures by the Reserve Bank of India (RBI) to liberalise external commercial borrowing programme would take time to be effective.
There has been an increase in spreads by factor of five to eight times over 2007 levels across a wide range of borrowers and tenors along with tighter structures and shorter tenures.
However, despite a slowdown in the fund raising activities, some of the top-Indian corporates have executed transactions in the current fiscal even at a higher price, Bhatia said. BoA was the lead arranger for the recently concluded $1 billion fund raising programme for metals major Hindalco to refinance its Novelis acquisition in Canada. Around 11 banks participated in the deal.
The five-year bridge loan was raised at 315 basis points above Libor.
