State Bank of India, the country's largest PSU bank, is reportedly planning to borrow as much as $1.25 billion. If the borrowing comes to fruition, it would mark the largest dollar loan by India's financial sector this year.
According to sources cited in a report by Bloomberg, this five-year loan is being arranged by CTBC Bank, HSBC Holdings Plc and Taipei Fubon Bank, with an interest margin set at 92.5 basis points above the risk-free secured overnight financing rate.
The Secured Overnight Financing Rate is a benchmark interest rate used in the US financial markets for short-term lending. The banking firm is securing this facility for general corporate purposes via its branch in the Gujarat International Finance Tec-City, sources cited in the report stated. They also added that the deal is being syndicated to other financiers.
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Notably, State Bank isn't the only banking firm to go for dollar-denominated loans this year.
The largest PSU bank is among the several domestic borrowers turning to foreign currency debt, especially non-banking financial companies or “shadow banks,” who are switching to this facility owing to stricter regulations in the domestic finance space.
However, India’s dollar loan volume has dropped by 27 per cent to $14.2 billion this year, largely owing to a lack of major corporate borrowings, according to Bloomberg data.
SBI hikes Minimum Lending Rate
The banking firm announced a 0.05 per cent increase in the marginal cost of fund-based lending rate (MCLR) in some tenors, on Thursday.
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The one-year MCLR, a key tenor to which long-term loans like home finance are linked, has been increased by 0.05 per cent to 9 per cent effective from Friday, as per a notice on the lender's website.
The lender has hiked the MCLR twice in the recent past, amid fears that the higher cost of deposits because of the war on the liabilities side among banks will ultimately result in higher ending rates.
The bank's Chairman C S Setty had said 42 per cent of the bank's loan book is linked to the MCLR, while the rest is external benchmark-based.
He had also made it clear that the deposit rates have peaked in the system and the bank will not use the rate as a pull factor for the customer.
(With inputs from PTI)
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