The State Bank of India (SBI), India’s largest lender, is planning to secure a substantial $1.25 billion loan in U.S. dollars. This will be the biggest dollar-based loan obtained by any Indian financial institution this year. The funds are being raised for SBI’s general corporate purposes through its branch in Gujarat International Finance Tec-City (GIFT City), a new financial hub in India.
The loan is structured as a five-year term with an interest margin of 92.5 basis points above the Secured Overnight Financing Rate (SOFR), which is a common benchmark for borrowing costs. Arrangements for this loan are being handled by CTBC Bank, HSBC, and Taipei Fubon Bank, who are also inviting other lenders to join the loan syndicate. SBI has not commented publicly on this transaction yet.
SBI is joining a trend among Indian companies that are seeking foreign currency loans this year. Non-banking financial companies (NBFCs), which operate similarly to banks but aren’t licensed to take deposits, are particularly active in borrowing from foreign sources due to tighter regulations in India.
Other recent examples include:
- Cholamandalam Investment & Finance Co., another NBFC, which recently arranged a $300 million syndicated loan.
- Union Bank of India, which is promoting a 125 million Australian dollar loan through its branch in Sydney.
- Bank of Baroda, which is in the process of arranging a $750 million loan.
While several Indian institutions are tapping into the foreign loan market, the overall volume of Indian dollar loans has actually decreased this year—down 27% to $14.2 billion. This decline is largely due to the lack of large-scale borrowing by major corporations. However, in July, SBI secured another significant foreign loan for $750 million over three years. SBI’s move to borrow $1.25 billion marks a major step in foreign financing by Indian banks, aimed at broadening its funding base amid rising demand and regulatory changes at home.
This large dollar-denominated loan of $1.25 billion will provide several advantages to the State Bank of India (SBI):
1. Diversification of Funding Sources
- By borrowing in dollars, SBI diversifies its funding sources beyond the Indian rupee market. This helps reduce the bank’s reliance on domestic funding, making it more resilient to local market fluctuations and interest rate changes in India.
2. Access to Cheaper Capital
- Dollar loans, particularly those with relatively low-interest margins like this one (92.5 basis points above SOFR), can be more cost-effective than local borrowing. Given the lower interest rates in U.S. and global markets compared to India’s rates, this loan may be a cheaper way to raise capital.
3. Liquidity for General Corporate Purposes
- The loan is earmarked for general corporate purposes, giving SBI flexibility in how it allocates these funds. This could include increasing liquidity, expanding loan offerings, improving asset quality, or addressing any immediate capital requirements. The funds could help SBI address demand for credit from corporations and individuals, particularly for foreign currency loans.
4. Enhancement of GIFT City Operations
- By channeling the loan through its branch in GIFT City, SBI is likely enhancing its profile within this new financial hub. This move can position SBI as a leading Indian bank in the international finance landscape, while also aligning with government initiatives to make GIFT City a global financial hub.
5. Strengthening Foreign Currency Reserves
- Having access to substantial dollar reserves gives SBI the capacity to lend in foreign currency to clients with international exposure. This could be valuable to companies engaged in imports, exports, or international projects, who require loans in dollars to hedge against currency risk.
6. Strategic Expansion into Foreign Markets
- With greater dollar liquidity, SBI can also explore expansion into international markets or support the needs of Indian companies operating abroad. This can enhance SBI’s standing and appeal among global investors and clients.
7. Competitive Edge Over NBFCs and Domestic Banks
- SBI’s ability to secure a significant loan at competitive rates offers a potential advantage over non-banking financial companies (NBFCs) and other domestic banks that may not have access to similar foreign funding options. This can help SBI maintain its leadership position in the banking sector.
This loan supports SBI’s goals of flexible capital access, market expansion, and enhanced resilience to domestic and global economic conditions.
