Mumbai, Aug 17: Banks are close to exhausting their lending limits under the foreign currency non-resident (Banks) loan scheme following the heavy offtake from corporates in the last two months.

State Bank of India, which has the highest FCNR(B) deposits among Indian banks, had till July 30, disbursed $ 604 million out of a lendable limit of $ 1 billion. Added to the approvals made so far-estimated at $200-$250 million-the limit of $ 1 billion is likely to be touched soon. The bank has recently sanctioned a $ 100 million FCNR (B) loan to Indian Oil Corporation. In July alone, SBI disbursed $ 166.97 million in this category.

SBI chairman MS Verma had said at the company's annual general meeting in Guwahati earlier this month that the bank would be lending only $ 1 billion out of its total FCNR (B) corpus of $1.9 billion to the corporates. Other banks active in lending FCNR (B) funds are also said to be nearing their limits. Canara Bank had lent about $ 200 million, Bank of Baroda about $ 250 million and Bank of India also around the same figure till a month ago.The increased demand from corporates for the cheaper loan has also helped trigger an inter-bank market for FCNR (B) funds.

Bigger banks are trying to source FCNR (B) funds from smaller banks who do not have the expertise to lend the forex-denominated loans directly to corporates. Corporation Bank, for one, is said to be in the market to lend its FCNR (B) funds at 50 basis points above Libor to other banks.

This could work out very attractive for the big banks as they have been lending at 300-200 basis points above Libor. The average rate at which SBI has lent FCNR (B) loans is around 250 basis points above Libor.

The sudden rush from corporates is mainly because of the low cost of forex premia during the last two months. The cost of funds at 300 basis points above Libor plus the forward premium of four per cent will translate to around 13 per cent, which is cheaper than any rupee loan. Though other cheaper six-month avenues like commercial paper (CP) at 10 per cent are available, many corporates prefer to have a mix of instruments to structure their exposures to various limits. For example, excessive dependence on CPs could eat into corporate credit limits.

Corporates generally utilise the cheaper FCNR (B) loans to arbitrage on interest rates, say sources. Most FCNR (B) loans disbursed so far have been for maturities of 12 to 18 months.

The loans have also been spread across a wide spectrum of corporates. Except for the $ 100 million FCNR (B) loan by Bank of Baroda to Air India and a loan of a similiar amount from SBI to Indan Oil Corporation, most of the loans disbursed are for much smaller amounts.

Copyright © 1997 Indian Express Newspapers (Bombay) Ltd.