| |
| Home loans: with Indian banks awash with rupee deposits, corporates are being encouraged to borrow domestically |
In a bid to moderate dollar inflows, the Indian government took steps early last month to discourage Indian companies and financial institutions from borrowing in foreign currency. The new rules stipulate a lower all-in cost for commercial bank loans and restrict the purpose for which loans of over $50 million can be raised.
Foreign currency loans must now be raised at an all-in cost of between 150 and 300 basis points over six-month Libor as against 300bp to 0bp over Libor earlier. Also, in the case of loans of over $50 million, borrowers must use the money either to finance imports or to meet the foreign exchange costs of infrastructure projects.
The new rules mean only top-rated Indian companies can access the syndicated bank loan market, if at all, while they specifically bar Indian banks and finance companies from raising foreign currency loans or providing guarantees and credit enhancement to companies wanting to raise such loans.
The notification by the finance ministry points out that the new measures are "for a temporary period until further review".