India's Tata Steel has started talks with lenders including Citigroup to refinance as much as 3.5 billion pounds ($5.4 billion) in loans for its British unit, Bloomberg reported, citing six sources with knowledge of the matter.

Royal Bank of Scotland , Standard Chartered and BNP Paribas are also part of the negotiations, according to the Bloomberg report. The sources declined to be identified before an official announcement.

Tata Steel took out the loans to fund its $12.9 billion acquisition of Europe's second-largest steelmaker Corus in 2007, just before the global economic slump pared demand for steel and prompted banks to curtail lending.

Tata Steel is in talks for a five-year loan for 2 billion pounds of the debt, with the bulk of payments due toward the end of the tenor, two of the people said in the Bloomberg report.

Interest rates for the loans are likely to be more than 300 basis points above the London interbank offered rate, or Libor, one of the sources said. Tata Steel is also considering selling bonds, two of the people said, according to the report.

Tata Steel's finance head Koushik Chatterjee declined to comment to Bloomberg, saying there is nothing on the table.

Earlier this month, the company denied a media report it was planning to raise $2 billion through fresh equity over the next quarter to help fund expansion.

(Editing by Kazunori Takada)

India BNP Paribas Citigroup