| According to bankers engaged in loan syndication, most players use ECB funds for on-lending activities in the domestic market. Even as the US has been raising rates in regular intervals and the international interest rate benchmark, London inter-bank offered rate (Libor), for six months has touched around 3.3 per cent, domestic corporates find one-year money cheaper overseas compared with funds raised for similar maturity locally. |
| While ICICI Bank and Corporation Bank are raising one-year funds through ECBs, Housing Development Finance Corporation (HDFC) has opted for a refinance of its $100 million for a maturity period of one-and-half years. |
| Overseas borrowing by banks and institutions are capped at 25 per cent of their Tier I capital, which comprises equity capital, reserves and surplus. |
| Bankers said that with six-month Libor at 3.3 per cent and withholding tax of 20 basis points (one basis point is one hundredth of a percentage piont), and the spread inclusive of the margin for the loan syndication of 40 basis points, the total cost approximately works out to 4 per cent. In Indian market, the underlying rate for one-year money, 364-day treasury bill, is 5.66 per cent. |
| The overseas loan arrangers are not restricting themselves to only loan arrangement. |
| They are offering factoring services as well for their ECB clients as a structured trade finance facility. A case in point is ING Vysya. Bankers said ING Vysya has agreed to buy out the export receivables of United Phosphorous worth Rs 100 crore. |
| While United Phosporous is an ECB borrower for the bank, the receivables to be bought back by the bank are insured by ICICI Lombard and reinsured by Qbe, Australia. |
| These facilities will gradually become a trend as margins for ECBs come under pressure with rising interest rates. |
| "When the base rates for the cost of borrowing is going up so sharply, one has to compromise on the margin for keeping business," said a leading loan syndicator. |
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