InvestorQ : Why is SBI tapping the Japanese market to raise funds?
vidhya Laxmi made post

Why is SBI tapping the Japanese market to raise funds?

sarah Leo answered.
10 months ago

State Bank of India, India’s largest bank by total assets, has just managed to tap funding limits from the Japan Investment Banking Corporation or JIBC to raise $1 billion. SBI needs to raise substantial funds in this fiscal year to keep its loan books ticking.

Traditionally, Japan has been a source of cheap funding for global corporations including India for two reasons. Firstly, the interest rates in Japan have been among the lowest and it has been kept that way for a long time due to low inflation.

The second reason is that the Japanese Yen has been relatively stable over long periods of time and many investors prefer Japan currency as a safe haven currency due to it enjoying a current account surplus for a very long time.

When Indian borrowers take money in Japanese Yen, the biggest risk for them is the currency risk. In short, that is the risk that the rupee depreciates versus the Japanese Yen making it tougher to repay the loan for the Indian borrowers.

However, the experience of late has not been too worrisome. The loan is taken for tenure of less than 5 years. The rate of borrowing in Japan has been around 2.5%, but SBI has not disclosed its borrowing costs this time around.