Three Indian development finance institutions intend to obtain at least $1.5 billion in foreign currency bank loans through the central bank’s reduced-rate overseas borrowing program, according to three individuals aware of the plans. The institutions prefer loans to bonds since none has previously issued dollar debt and the procedure is less complex, the sources noted. The National Bank for Agriculture and Rural Development, the Small Industries Development Bank of India and the National Bank for Financing Infrastructure and Development are each targeting a minimum of $500 million in foreign currency loans. NaBFID is the most advanced, having begun discussions with lenders. NaBFID expects to raise as much as $2 billion through external commercial borrowings this financial year, starting with $500 million via the ECB route after initiating market exploration, its managing director stated. The subsidized RBI facility makes external commercial borrowings significantly less costly, with an estimated landed cost of 6.5 to 7.0 percent for the loan. NaBFID had previously secured $125 million through a smaller dollar loan in March. The sources spoke on condition of anonymity because they lack authorization to address the media. NABARD and SIDBI have not yet accessed foreign funding but have begun initial discussions and may enter the market within 30 to 40 days. A debut dollar bond issuance involves a lengthy and time-consuming process, making loans preferable for institutions that do not plan regular issuance. Dollar loans may currently be only slightly more expensive than bonds depending on credit ratings. Earlier this month the Reserve Bank of India permitted banks and state-run companies to use a subsidized hedging facility when raising overseas funds, reducing currency risk management costs to encourage dollar inflows and support the rupee.
