Indian lenders defer dollar debt sale plan as rates turn expensive

What happened

At least four Indian state-run and private lenders are deferring plans to sell US dollar debt because higher Treasury yields and hedging costs made it expensive. Canara Bank, Punjab National Bank and Bank of India had planned up to $2.5 billion in dollar debt sales under a central bank subsidised hedging facility.

Confirmed

Global impact / market context

If dollar borrowing stays costly, these banks may raise rupee funds instead, which shifts their funding mix and could raise interest costs. That can squeeze profit per sale on lending and slow loan growth plans that depended on overseas cash.

Analyst inference

The 10-year US yield rose around 5% in two months, while the rupee fell slightly. Bankers say all-in dollar debt now costs more than one-year rupee funding, using basis points, which means hundredths of a percentage point, to measure the gap.

Analyst inference

What to watch

1. Canara Bank's chief executive told Reuters the bank decided not to proceed with the planned dollar bond sale because rates had shot up quite sharply. Confirmed
2. Watch whether the lenders revive dollar debt sales later if Treasury yields and hedging costs fall, or choose rupee bonds instead to fund lending growth. Proposed
3. Heavier supply from Indian lenders has widened secondary spreads, which means the extra yield over benchmarks, so new dollar issues may stay costly and keep postponements going. Analyst inference

Evidence

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