India pushes for cheaper MDB loans in yen, rupees
new delhi, July 5 -- India is pressing multilateral development banks (MDBs) to lend more in Japanese yen and Indian rupees in an attempt to reduce borrowing costs and manage exchange rate risks more effectively, two officials aware of the matter said.
New Delhi has steadily expanded loans and official development assistance (ODA) in yen to gain from ultra-low interest rates and the rupee's appreciation against the Japanese currency. Many of these loans finance infrastructure and development projects.
"Yen rates remain close to zero, and with the rupee having appreciated significantly against the yen since early 2023, yen borrowings, including through Samurai bonds, have emerged as a compelling option," one of the two officials cited above said, requesting anonymity. Samurai bonds are yen-denominated bonds issued in Japan by foreign entities to raise money.
The development assumes significance since MDBs such as the World Bank, Asian Development Bank (ADB) and the International Monetary Fund (IMF) play a central role in global finance, especially in developing economies. These institutions lend in dollar as well as other reserve currencies. ADB, which mainly lends in dollars, has also issued rupee bonds. The Asian Infrastructure Investment Bank (AIIB) too lends in yen, euro and rupees. The yen is part of IMF's special drawing rights (SDR) basket of currencies, and can be used depending on borrower preference and availability.
India is pushing for loans in yen, the second official confirmed, adding "These loans and ODAs are not free, and we pay interest on them. A lot has changed now with India's rise at the global high table, and we are in a better position to negotiate our terms and conditions with the MDBs," said the second person. "Also, given our past record, India also happens to be very attractive for these lending institutions as well, given our repayment history and the credit profile. We will follow the strategy which is in our best interest," the person added.
An ADB spokesperson said the bank has received a handful of requests from India for yen-denominated loans in the last two years, with three such agreements signed in 2023 and 2024. These include the Delhi-Meerut RRTS Tranche 3 (2023), the Nagpur Metro Urban Mobility Project (2024) and the Amaravati Capital City Development Programme (2024).
The ADB spokesperson said 20 out of 22 sovereign loans signed in 2024 were in dollars....
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