Rupee Plunge Spurs State Bank to Increase Rates: Corporate - TopicsExpress

Rupee Plunge Spurs State Bank to Increase Rates: Corporate India State Bank of India, the nation’s largest lender, will raise interest rates for overseas credit to protect its profit as the rupee’s plunge to a record raises the risk of borrowers defaulting on their loans. The state-owned bank will increase lending rates to cover the probability of rising bad loans from unhedged currency exposure and higher foreign-currency yields, said Managing Director Hemant Contractor, who heads the lender’s international operations. Overseas loans accounted for more than 16 percent of State Bank’s 10.8 trillion-rupee ($177 billion) loan book as of March 31, exchange filings show. The failure by companies to protect against currency swings, combined with rising U.S. Treasury rates, will boost average costs for dollar-denominated debt, he said. The yields for Indian companies surged in June at the fastest pace since October 2008, according to HSBC Holdings Plc (HSBA) indexes. Raising lending rates for debt taken abroad may help State Bank improve its net interest margin for international loans, which narrowed to the lowest level in two years in the quarter ended March 31. “Banks want to price in risks from rupee volatility and global economic uncertainty,” Contractor said in an interview in Mumbai. “Bond yields have gone up in overseas markets. Since we have to tap the markets regularly for meeting the demand, we will have to price loans higher.” Net interest margin on international loans at the lender narrowed to 1.5 percent in the three months to March 31, the lowest in two years, exchange filings show. The measure was at 1.49 percent in three months to March 31 at state-run Bank of Baroda, compared with 1.68 percent a year ago. bloomberg/news/2013-07-08/rupee-plunge-spurs-state-bank-to-increase-rates-corporate-india.html