Plans to raise Rs 12,500 crore from the domestic market.
The Export Import Bank of India (Exim Bank) has sought trade finance worth $60 million from the International Finance Corporation (IFC) as well as commercial banks for lending to small and medium enterprises (SMEs).
It also plans to raise about Rs 12,500 crore from the domestic market in 2009-10 to support its lending operations and redemptions.
LONG-TERM VALUE
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While IFC, which is the World Bank’s private sector funding arm, would extend $30 million, at least one other private sector bank would provide another $30 million. The tenure of the loan would be six months and most of it would be extended to SME exporters in the private sector to finance their operations.
According to IFC’s documents, the trade finance project will support international trade as it helps companies, including SMEs. This financing arrangement will help the firms to execute those export orders which could have been kept in abeyance.
Exim Bank Executive Director N Shankar said, “This is a part of our normal borrowing programme. The bank had received ¤150 million from the European Investment Bank (EIB) in 2008-09 too.”
The EIB credit is being used to part-finance investments that will help in mitigating the effects of climate change, or to support European Union (EU) presence in India.
On the bank’s total foreign currency borrowings in 2008-09 and plans for 2009-10, Shankar said it would amount to about $1 billion. “The quantum of external borrowings will depend on the demand from Indian companies,” he said.
The liquidity in international markets dried up after Lehman Brothers collapsed in September 2008. Thereafter, the risk spreads over benchmarks – like the London Interbank Offered Rate – shot up.
One public sector bank official said that the ruling interest rate for loans to Indian companies could be as high as Libor-plus-800 basis points. While Libor is variable, the risk spread is fixed for the tenure of a loan.
Libor may be low right now, but it is expected to move up over a period, which will make overseas borrowings a costly affair.
“At present, it may make sense for companies to borrow in the domestic market, where loans are cheap,” Shankar pointed out.
On plans for domestic borrowings, he said that Exim Bank will raise long-term and short-term funds amounting to Rs 12,500 crore through instruments like Non-Convertible Debentures and Certificates of Deposit.
The bank has outstanding borrowings of Rs 30,000 crore.
The export credit body has already raised under Rs 1,000 crore from retail investors through term deposits with maturity periods of between 1-5 years. “This segment helps to broad-base the investor base,” Shankar said.
The average cost of funds rose to around 8.5 per cent in 2008-09 due to the hardening of interest rates.
Commercial banks, which depend largely on deposits, can often change interest rates based on market trends.
“However, Exim Bank faces constraints in making frequent changes in rates as it depends on long-term instruments where coupon rates are fixed at the time of issuance,” Shankar said.
