Several blue-chip Indian corporates are planning to buy back their bonds from the local market, opting for cheaper dollar loans on the back of crashing forward premiums. This will bring down their cost of borrowings by around 125 basis points.

"India Inc is looking outwards to cut borrowing costs. This has largely been prompted by the falling rate of currency swaps and dollar interest rates," a banker said.

The five-year currency swap, at around 5.25 per cent at the beginning of the year and at 4.95 per cent on April 19, is now at 3.25 per cent. The six-month London inter-bank overnight rate (Libor) is now pegged at around 1.2 per cent.

A strong Indian corporate can borrow externally for a five-year tenure at around 100 basis points above the Libor. "Corporates are now going in for a five-year currency swap because rates have fallen to record lows.

"Moreover, once a swap is made, there is no currency or interest rate risk. If the arranger's fees of around 0.25-0.3 per cent are included, a company will be able to raise five-year money at around 4.75 per cent," the banker pointed out.

Through dollar financing, a company can bring down the cost of one-year money to as low as around 3.6 per cent while the cost of rupee financing can be at least 6 per cent.

With the one-year Libor at around 1.2 per cent today, a corporate raising a one-year overseas loan at 2 per cent over the Libor and converting the money into rupee has to spend less than 4 per cent even after taking the forward cover (1.2 per cent + 2 per cent + 0.38 per cent).

A company which recently borrowed $75 million is now looking at buying back its bonds, which are trading at around 6 per cent. "It will be able to save around 150 basis points if it buys back these bonds. Many of the corporate groups are also looking at the same facility to refinance their rupee liabilities," another banker said.

"Firms are rushing to raise overseas funds because banks have exhausted their foreign currency non-resident bonds B kitty from where dollar funds are disbursed to companies," a treasury manager pointed out.