Global financial crises is also affecting India Inc as some local corporates and banks are realizing rise in cost of servicing their overseas loans has temporarily by 1-3%. First time lenders have invoked the ''market disruption clause''. The market disruption clause was invoked, after beginning of crisis in global credit markets following the collapse of investment bank Lehman Brothers in September last year. Internationally, bank-borrowing costs have gone up considerably, from Libor-plus 10-15 bps to around Libor-plus 50-60 bps currently.
Borrowing costs for Indian public sector banks have increased even more sharply. A one-year loan, which was pegged at 20 bps above Libor prior to the credit crisis, would now be available for not less than Libor-plus 150 bps.
Besides, overseas lenders, including foreign and Indian banks with offshore branches, are also in the process of increasing interest rates. They are asking for more security from Indian corporates, which have broken their financial agreement due to the downturn.
Delhi-based infrastructure corporate, a group company of a large private sector conglomerate and a couple of major public sector institutions are among the companies, which have broken financial covenants. Bankers are awaiting audited results of FY09 before taking a final decision in some cases.
The ''market disruption clause'' is found in most of the overseas loan agreements. It gets triggered, usually for a quarter, if banks find it very hard to raise funds, or when their cost of borrowing increases significantly. Most of the hikes in rates came after a host of banks invoked the clause during the quarter-ended December 2008. For most overseas loans, banks charge a premium over the benchmark London Inter-Bank Offered Rate (Libor).
Borrowing costs for Indian public sector banks have increased even more sharply. A one-year loan, which was pegged at 20 bps above Libor prior to the credit crisis, would now be available for not less than Libor-plus 150 bps.
Besides, overseas lenders, including foreign and Indian banks with offshore branches, are also in the process of increasing interest rates. They are asking for more security from Indian corporates, which have broken their financial agreement due to the downturn.
Delhi-based infrastructure corporate, a group company of a large private sector conglomerate and a couple of major public sector institutions are among the companies, which have broken financial covenants. Bankers are awaiting audited results of FY09 before taking a final decision in some cases.
The ''market disruption clause'' is found in most of the overseas loan agreements. It gets triggered, usually for a quarter, if banks find it very hard to raise funds, or when their cost of borrowing increases significantly. Most of the hikes in rates came after a host of banks invoked the clause during the quarter-ended December 2008. For most overseas loans, banks charge a premium over the benchmark London Inter-Bank Offered Rate (Libor).
No comments:
Post a Comment