abhishreshthaa
Abhijeet S
Differential of American lending and borrowing rates. The interest rate paid by American banks was low, vis-à-vis, the expected rate from borrowers.
European banks availed of this opportunity; they offered higher rates of interest at the cost of contenting themselves with smaller margins than those offered by American banks, to attract investors.
They could do so by operating on Euro dollar markets, which were not subject to interest-rate and other regulations.
For instance, banks were neither constrained to respect a certain compulsory reserve ratio on their deposits in Euro dollars nor constrained to maintain their interest rates below a certain ceiling.
There may be other reasons as well for development of Euro dollars. Globalization of big multinationals has further boosted this development.
The financing system practiced hitherto also was not able to respond to capital needs of the international economy.
Indian entities began accessing external capital markets towards the end of the seventies as gradually the amount of concessional assistance became inadequate to meet the increasing needs of the economy.
The initial forays were low-key. The pace accelerated around mid-eighties, but even the authorities adopted a selective approach and permitted only a few select banks, all India financial institutions and large public and private sector companies to access the market.
After liberalization, during 1993-94 there was a sharp increase in the amount of funds raised by corporate entities form the global debt and equity markets.
India’s borrowings have mainly been by way of syndicated bank loans, buyers’ credits and lines of credits. Other instruments such as foreign and Euro bonds have been employed less frequently though a number of companies made issues of Euro convertible bonds after 1993.
Prior to that only apex financial institutions and the public sector giant ONGC had tapped the German, Swiss, Japanese, and Euro dollar bond markets.
Throughout the eighties, there was a steady improvement in the market’s perception of the creditworthiness of Indian borrowers (manifested in the steady decline in the spreads they had to pay over LIBOR in the case of Euro loans).
The 1990-91 crisis sent India’s sovereign rating below investment grade and the foreign debt markets virtually dried up to be opened up again after 1993.
European banks availed of this opportunity; they offered higher rates of interest at the cost of contenting themselves with smaller margins than those offered by American banks, to attract investors.
They could do so by operating on Euro dollar markets, which were not subject to interest-rate and other regulations.
For instance, banks were neither constrained to respect a certain compulsory reserve ratio on their deposits in Euro dollars nor constrained to maintain their interest rates below a certain ceiling.
There may be other reasons as well for development of Euro dollars. Globalization of big multinationals has further boosted this development.
The financing system practiced hitherto also was not able to respond to capital needs of the international economy.
Indian entities began accessing external capital markets towards the end of the seventies as gradually the amount of concessional assistance became inadequate to meet the increasing needs of the economy.
The initial forays were low-key. The pace accelerated around mid-eighties, but even the authorities adopted a selective approach and permitted only a few select banks, all India financial institutions and large public and private sector companies to access the market.
After liberalization, during 1993-94 there was a sharp increase in the amount of funds raised by corporate entities form the global debt and equity markets.
India’s borrowings have mainly been by way of syndicated bank loans, buyers’ credits and lines of credits. Other instruments such as foreign and Euro bonds have been employed less frequently though a number of companies made issues of Euro convertible bonds after 1993.
Prior to that only apex financial institutions and the public sector giant ONGC had tapped the German, Swiss, Japanese, and Euro dollar bond markets.
Throughout the eighties, there was a steady improvement in the market’s perception of the creditworthiness of Indian borrowers (manifested in the steady decline in the spreads they had to pay over LIBOR in the case of Euro loans).
The 1990-91 crisis sent India’s sovereign rating below investment grade and the foreign debt markets virtually dried up to be opened up again after 1993.