Indian companies are closely looking at the yen market for overseas loans as Japanese interest rates fell below zero for the first time on Friday -- a fallout of the Bank of Japan's policy of flooding the banking system with excess cash to drive interest rates down to near zero.

"We are getting enquiries from corporates for yen loans," said a source at Bank of Baroda. Another banker at a European bank said at least a couple of Indian companies are ready to hit the market to raise yen loans.

Apart from the low interest rates, companies will gain in terms of lower witholding tax which is charged on the net interest outgo from India.

Industrial Development Bank of India is looking at tapping the external commercial borrowing market with a $75 million issue carrying a greenshoe option of another $20 million. Sources said it is exploring both the options -- dollar as well as yen. Another large financial intermediary is also exploring the possibility of raising yen loans.

Last year, Housing Developement Finance Corporation had raised a yet loan.

At present, the one-year Japanese Libor is at 0.0931 per cent and the three-month Libor is at 0.057 per cent. In contrast, the three-month dollar Libor is 1.4 per cent and one-year is 1.43 per cent.

A triple-A company can borrow from the overseas market at a spread of 50-70 basis points while a AA+ rated corporate can borrow at a spread of around 80 basis points.

"The yen has been apreciating againt the dollar and this is an indirect cost to the issuer. However, this can be offset by the lower withholding tax," said a senior foreign banker.

The other problem that companies can face is that there is not much appetite for Indian papers.

"Investors overseas have become very credit quality conscious becasue of the high rate of bankruptcies among US companies. When you consider the final cost after conversion, the interest rates in the domestic market and the yen market would be the same,"said Development Credit Bank's integrated treasury head K Harihar.

The forward rate for yen-rupee for a one-year period is 4.50 per cent.