Will search for cheaper finance haunt India in the future?

Union Bank of India plans to raise as much as $150 million from yen-denominated loans to fund lending at home.

General Manager, Bhaskar Sen, says the lender has hired five banks which include Standard Chartered Bank, Citigroup and Bank of America to raise the three-year loan. An initial amount of $100 million was borrowed with another $50 million in the pipelines. Part of the funds will be used to make foreign-currency loans to exporters, and convert the rest into rupees to extend lending in India. With this, the bank expects loan demand to grow as much as 25 percent in the year to March 31.

"The primary reason why Indian companies, including banks, are looking for overseas money is that such funds are cheaper due to lower interest rates," said Rajesh Malhani, a banking analyst with a Mumbai-based brokerage. Indian banks are raising money overseas to meet credit demand in the country as gross domestic product expands fastest clip after China. Union Bank has lent about 10 percent of its borrowing to public works projects.

Should Indian banks look closer to home in order to increase liquidity in the lending market instead of seeking cheaper finance overseas? Your thoughts