Kotak Mahindra Bank taps HSBC and CTBC for $600-million overseas loan

Synopsis

Kotak Mahindra Bank plans a $600 million loan from HSBC and CTBC Bank. Bank of India also secured $600 million through a dual-tranche term loan. These foreign currency facilities aim to attract dollars into India. The funds will likely support overseas clients making FCNR (B) deposits. This move leverages a special swap facility from the Reserve Bank of India.

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Mumbai: Kotak Mahindra Bank plans to raise $600 million through a 42-month loan from HSBC and Taiwan's CTBC bank, a rare foreign currency facility for the private sector lender. Separately, state owned Bank of India (BoI) has also raised $600 million through a dual-tranche term loan from Japan's Mizuho Bank, people familiar with both deals told ET.

The Kotak loan is likely to be priced at more than one percentage point above the three- month secured overnight funding rate (SOFR) and qualifies for the special swap facility from the Reserve Bank of India (RBI), people familiar with the matter said. "The bank is yet to fully crystallise the pricing on this loan, which will be done in the next few days. The loan is likely to be syndicated to a wider section of banks and is part of the bank's overseas borrowing programme," said a person familiar with the details.

Kotak did not immediately reply to emails seeking comment late on Monday. A spokesperson at HSBC declined to comment.

The loan is a rare foreign currency fund raise from the domestic focused bank and its timing suggests the facility seeks to take advantage of the RBI's special window to attract dollars into the country. The money will most likely be used by Kotak to provide leverage to overseas clients making FCNR (B) deposits with the bank.

The RBI is absorbing the entire currency hedging cost for banks on fresh three- to five-year FCNR (B) deposits, allowing banks to raise fresh funds without worrying about the heading costs.

The BoI loan is divided into a $400 million, 3-year tenor priced at 97 basis points above SOFR and $200 million, 5-year tenor 110 basis points above the SOFR rate.

One basis point is a hundredth of a percentage point.

The funds will be used by BoI to provide leverage to their FCNR (B) depositors, said a person familiar with the loan. BoI did not immediately reply to an email seeking comment while Mizuho Bank could not be reached.