MUMBAI: IndusInd BankBSE -0.29 %, the fourth biggest private sector lender, may raise as much as $300 million from overseas investors, exploiting the Reserve Bank of India's window of attractive swap options.
The easing of rates in the dollar market after the Federal Reserve made a U-turn on tapering of bond purchases earlier this month, has made borrowings in overseas market attractive.
Furthermore, the flexibility to raise even one-year funds to avail the swap options has made banks believe that the risk is lower as a minimum three-year borrowing as stipulated has been done away with. "Now the tenure of the borrowing and the hedge will match," said Romesh Sobti, MD and CEO, IndusInd Bank. "Earlier, the norms specified that while the borrowing was for three years, the hedge would be available only in the first year."
The Reserve Bank of India on Wednesday reduced the minimum tenor of fund raising to one year since banks were reluctant to take funds for a longer tenor when the demand for funds remain uncertain. Also, the fall in yields of 20 to 40 bps since May 18 when Fed decided not to taper, has boosted sentiment.
RBI governor Raghuram Rajan had doubled banks' limit to borrow overseas as he attempted to shore up reserves to prevent a currency crisis. The rupee was on a free fall as foreign investors pulled out 68,738 crore from Indian bonds and stocks.
Borrowing overseas makes a lot more sense since the yields in the local market have shot up after Rajan raised the repo rate, the rate at which RBI lends to banks, by 25 basis points on September 20. One-year money in the domestic market comes at 9.50% while the all inclusive cost of borrowing under this window is around 8.50%.
Other banks, including ICICI BankBSE -2.52 %, HDFC BankBSE -1.74 % and Axis BankBSE -0.93 %, are also talking to investment bankers to finalise fund raising, which is expected to raise at least $5 billion. HDFC Bank may raise as much as $750 million, said a person familiar with the negotiations. The confluence of falling yields in the international market, and rising yields in the Indian markets are making borrowing overseas attractive.
"We have already borrowed around $800 million of debt. We don't mind raising as much as $300 million. We are in talks with banks. There is a clear cost advantage of about 100 to 150 basis points,'' said Sobti.