India’s largest non-banking finance company by market value is planning to borrow up to $500 million offshore. This move comes as a response to stricter domestic regulations that limit local borrowing options.
Negotiations with Foreign Banks
Bajaj Finance Ltd., the company in question, is currently in negotiations with a group of at least four foreign banks to secure the terms of the borrowing facility. The debt’s tenure is expected to range from three to five years, with the pricing linked to the Secured Overnight Financing Rate, a commonly used benchmark for deals in Asia.
RBI’s External Commercial Borrowing Route
The borrowing will be facilitated under the Reserve Bank of India’s external commercial borrowing (ECB) route, which caps the interest rate at 500 basis points over the benchmark rate. A spokesperson for Bajaj Finance declined to comment on the specifics of the transaction.
Shift to Global Credit Markets
A growing number of local shadow financiers are turning to the global credit market after the Reserve Bank of India (RBI) directed banks to raise buffers for consumer loans to curb risky lending practices. This regulatory change has made it more challenging for these lenders to secure loans from domestic banks, pushing them towards alternative credit sources.
Other Companies Joining the Trend
Gold loan providers such as Manappuram Finance Ltd. and Muthoot Finance Ltd., along with Piramal Capital & Housing Finance Ltd., are among the shadow financiers that have borrowed abroad this year. Additionally, HDB Financial Services Ltd., a subsidiary of India’s largest lender by market value, is also in the process of raising foreign capital.
Bajaj Finance’s Business Focus
Bajaj Finance, a subsidiary of one of India’s oldest conglomerates, offers loans for the purchase of two- and three-wheelers manufactured by its group company, Bajaj Auto Ltd. The company also provides loans for consumer appliances and is actively involved in the personal and mortgage loan sectors.
