Indian firms can now borrow upto US$1 billion in Yuan
September 14, 2011

Even as an increasing number of Indian states and politicians tour China in a bid to scour up investments, India has allowed local companies to borrow up to US$1 billion in the Chinese currency within the US$30 billion ceiling on foreign borrowings for this fiscal year.

As the Renminbi, or China’s people currency inches towards an international status, trade between China and India booms and western currencies weaken, the new move by India’s Central Bank the Reserve Bank of India is expected to provide some flexibility to Indian companies, especially firms that import power equipment from China, as rising borrowing costs in India have been forcing them to delay investment decisions. Many firms are now obligated to borrow funds from Chinese banks to pay for power and telecom equipment the country so badly needs to ramp up its infrastructure.

Between April and August, Indian companies borrowed US$15.93 billion from overseas. Prime Minister Manmohan Singh aims to double spending on infrastructure to US$1 trillion in the five years to March 2017 to accelerate growth to more than 10 percent and lift living standards in the nation.

There is no specific ceiling on individual companies for borrowing in the renminbi within the limit of $1 billion. However, the proposal has to be approved by Reserve Bank of India (RBI).

The decision shows the increasing relevance of the Chinese currency, said D.K. Joshi, chief economist at ratings agency Crisil Ltd.

Infrastructure Leasing & Financial Services Ltd., an Indian lender to road projects, plans to raise US$100 million from yuan- denominated bonds and has hired bankers to manage the sale.

Many companies have sought the yuan as one of the currencies for overseas debt. Lanco Infratech Ltd., Adani Power Ltd., SRM Energy Ltd. and Moser Baer Projects Pvt. have said they’re talking to China’s export banks for loans, after billionaire Anil Ambani’s Reliance Power Ltd. borrowed US$1.1 billion from China Development Bank Corp. in December.

Industrial & Commercial Bank of China Ltd., the world’s largest bank by market value, may provide services for Indian customers seeking to raise yuan funds from the sale of so-called dim-sum bonds, President Yang Kaisheng told the Businessweek.

“More multinational companies will feel comfortable tapping this market as the Chinese government continues to clarify its procedures for fund raising and remitting those proceeds into China,” Michael Lam, the Hong-Kong-based director of fixed-income capital markets for Asia at Deutsche Bank AG, said at a Euromoney conference in Singapore yesterday.

The ECB panel, comprising finance ministry and RBI officials, also decided to raise the limit on overseas borrowings of more than five years maturity under the automatic route—not requiring RBI’s approval—to US$750 million from US$500 million for individual firms.

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