India’s Oil and Natural Gas Corp. is looking to raise US$1 billion in the onshore market in its first big deal targeting foreign-currency deposits with domestic lenders.
The one-year loan would set a benchmark for size and pricing in the onshore U.S. dollar market, where financings typically come in small sizes of US$30 million to $50 million. It also offers Indian banks a rare opportunity to invest in one of the country’s top borrowers, since ONGC typically funds in dollars to match its cash flows.
Foreign currency non-resident (FNCR) accounts are fixed deposits in foreign currencies, such as U.S., Canadian and Australian dollars, yen, euros and pounds sterling belonging to non-resident Indians or persons of Indian origin.
According to the Reserve Bank of India’s website, outstanding FCNR deposits as of February 2018 totaled US$21.84 billion.
ONGC’s pursuit of the FCNR liquidity comes at a time when Indian banks are wrestling with non-performing loans in an environment of risk aversion, declining business opportunities and corporate governance issues.
“Indian banks are smarting from the recent developments around fraud and corporate governance issues that add to their NPL woes. ONGC’s deal brings a great opportunity to lend to one of the best credits from India,” said a senior loans banker in Singapore.
In mid-March, India’s central bank barred all lenders from issuing letters of undertaking—a form of credit guarantee at the center of what has been dubbed the biggest fraud in Indian banking history. It followed revelations from Punjab National Bank, the country’s second-biggest state-owned lender, which said in February two jewelry groups had defrauded it of about US $2 billion.
Earlier this month, rating agencies S&P and Fitch flagged the need to improve risk management and governance practices at Indian private-sector banks. Regulators have opened preliminary probes into possible corporate governance breaches at ICICI Bank, while Axis Bank said on April 9 that its long-serving CEO Shikha Sharma would step down at the end of 2018, earlier than expected.
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