The Indian government is talking to banks for a dollar-denominated financing deal to help repay its multilateral offshore debt, debt markets newsletter BasisPoint said on Monday.

"The sovereign is considering two options: an 'external commercial borrowing' that would be syndicated and a long-dated offshore bond," said BasisPoint, a Reuters company.

The proposed deal has generated considerable interest among major arranging banks in Asia and senior syndicators from several banks were in India last week to discuss the transaction, it added.

Both foreign and domestic banks are interested in the deal.

BasisPoint said the amount of multilateral debt to be refinanced is equivalent to about US$2.5 billion.

It quoted banking sources as saying that the Indian government is eyeing a 10-year loan with an amortising repayment schedule.

But bankers said New Delhi may have to pay higher rates for a long-dated loan.

BasisPoint also quoted sources saying that a long-dated bond would be an even tougher sell than loans because of New Delhi's sub-investment grade rating.

Moody's Investors Service rates India at Ba2 and rival Standard & Poor's has a BB-rating.