Bombay: Indian businesses have enjoyed the cheapest foreign currency lending costs for more than a decade, but could see the tides reverse as banks become more selective. This is the perspective of Sandeep Bhatt, Senior Regional Director for India in Mumbai at Export Development Canada, who has been active on Indian loans, including recent major transactions such as NatSteel Asia Pte, a unit by Tata Steel Ltd. loans to Indian borrowers could increase over the next six months, he said.
This is in addition to the forecast that the good days for many Indian companies offshore loan market may be over soon, as will local lenders struggling with mountains of loans for bad credit get harder, making borrowers more dependent on international creditors. The timing is not ideal, as the Federal Reserve’s monetary tightening is also pushing up dollar rates. United Overseas Bank said in May that India may be nearing a turning point in loan pricing.
“If rupee liquidity is not available due to non-performing loan problems of Indian banks, it has a ripple effect on the availability and price of offshore loan transactions,” Bhatt said.
So far this year, it has generally been a borrower market. Indian companies paid average margins of 118 basis points on five-year dollar syndicated loans, the lowest since 2005, according to data compiled by Bloomberg.
But in some cases, paltry margins mean fewer lenders are willing to participate, leaving businesses at the mercy of a smaller group of relationship banks.
Some recent examples that have added to the speculation about a possible market reversal:
Yes Bank Ltd. increased the margin on a $ 400 million loan it launched in July by 15 basis points against a similar facility a few months earlier The State Bank of India’s $ 750 million facility did failed to get banks to join syndication after it launched in May Tata Motors recently reduced its latest loan amount to $ 237.5 million from an initial target of $ 250 million.