Indian banks bolstered by new US$5 billion swap facility

It’s a huge help in their overseas fundraising.

Indian banks have begun using a new concessional swap facility for their overseas loans. Under an Indian government program launched September 10, Indian banks can borrow up to 100% of their Tier 1 capital level overseas.

The concessional swap rate offered by the Reserve Bank of India, the central bank, of 100 basis points below market rate will enable banks to save up to 300 basis points on their funding costs compared with domestic costs.

Any loan over 50% of this level, however, must be for a minimum three years, which some Indian bankers see as a disincentive for overseas lenders. The facility is expected to help revive a moribund market for overseas borrowing by Indian banks.

Press reports said Union Bank of India raised US$50 million overseas under the program and plans to raise up to US$500 million.

Bankers said the total amount available in the new concessional swap facility could reach US$5 billion, and could serve as a cushion for the beleaguered rupee. The rupee has fallen by 13% against the US dollar this year.

Indian banks generally borrow in tenors of one to three years in offshore loan markets. For longer maturities, they resort to overseas bond markets that offer bigger sizes.