Cos seek to change loan peg from T-Bill yields to repo rate

A sudden spike in short-term Treasury yields is forcing companies to redraw their loan terms with banks and investors with the repo rate as the benchmark, as the central bank policy rate is seen as a lot steadier than market-driven rates.

Borrowers, who for two years linked their rates to market-based external benchmarks to exploit falling interest rates, are now feeling the pinch, as a 140-basis-point increase in the repo rate since May this year has triggered an up to 162-basis-point jump in market rates. A basis point is one-hundredth of a percentage point.

While non-banking finance companies including and Fullerton are already raising repo-lined bonds, large companies are asking banks to revise their loan terms.

"We are raising our first rupee bonds linked to such a variable rate soon," said Umesh Revankar, managing director at Shriram Transport Finance. "If new credit is linked to any variables including repo, the transition of policy action becomes faster with stability."

On May 4 this year, the Reserve Bank of India increased the policy repo by 40 basis points, resuming a new rate-hike cycle. Since then, Treasury bills yielded 147-162 basis points higher in the primary market across three maturities - 91-day, 182-day and 364-day, show data from the RBI.

Some of the large conglomerates are said to have approached top lenders seeking conversion of loan benchmarks into the repo, at which banks borrow short-term funds from the RBI. The repo rate now is 5.40%.