No more cheap dollar loans for India Inc
mumbai — The good days for India Inc in the offshore syndicated loans market may soon be over, as foreign banks pinched by their own rising borrowing costs balk at the lowest lending rates in a decade.
“India may be approaching a turning point for loan pricing to come up a bit to facilitate syndication,” said Samuel Tan, co-head of loan syndication and distribution for United Overseas Bank in Singapore.
As the US Federal Reserve gears up for more interest rate hikes, a surging dollar is also fuelling bets that developing nations may also raise rates faster than anticipated. That’s all pressuring some global banks’ cost of funding. As a consequence, there are signs that foreign lenders are growing more selective with Indian loans, even as they cheer signs that the nation is moving toward cleaning up about $210 billion of non-performing assets.
In another sign of weakening demand from global banks, more Indian companies have been forced to rely on a smaller group of lenders to underwrite borrowings or to use their relationships to strike socalled club deals.
Companies may get cheaper borrowing costs through the club arrangements. But doing so makes them reliant on a smaller group of banks, creating the risk that any shift in those lenders’ willingness to extend funds could hamstring the firms.
The ability for lead banks to sell down Indian loans is decreasing due to low interest margins, according to Sandeep Bhatt, Mumbai-based senior regional manager for India at Export Development Canada. “In some cases, bankers are asking borrowers to bring their relationship banks as lenders to overcome this problem,” Bhatt said. “Pricing for large corporates is not expected to go down below current levels for the next six months.”