Lowered interest rates provide better business to Indian banks
IndusInd Bank is India's fourth largest private sector lender. It had laid out plans to raise as much as USD300 million from overseas investors, This move would exploit the Reserve Bank of India's opening for swap options that can attract investors.
The lowering of rates in the US dollar market after the US Federal Reserve Bank did not push through with the planned quantitative easing of its bond purchases had made loans in the overseas market much more cost effective to many businesses. This flexibility would raise the one year funds utiizing the swap options from the risks that three year borrowings programmes.
Reserve Bank of India last Wednesday had reduced the minimum requirements for fund raising to one year as many financial institutuons were reluctant to take on funds for a longer period because of the increased uncertainty in the market. Another factor is the decline in returns between 20 and 40 basis points since May 19 had boosted market sentiment for local fundraising activities.
According to individuals familiar with the transaction, HDFC Bank can raise as much as USD750 million through borrowings overseas. Other banks had followed suit, such as ICICI Bank and HDFC Bank as well as the Axis Bank can raise as much as USD5 billion in total.
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