India government spending drives borrowing costs down

Mumbai

PRIME Minister Narendra Modi has loosened government purse strings, swelling cash piles at Indian banks and driving short-term borrowing costs for local companies to a five-year low.

One-year commercial-paper rates fell to 8.54 per cent last week, the lowest level since October 2010, and the overnight interbank rate has averaged the least in four years this month. Lenders, which borrowed an average 18 billion rupees (S$386.6 million) daily from the Reserve Bank of India (RBI) last quarter to meet fund shortages, are now parking money with the central bank.