A number of Indian banks are getting ready to raise funds through dollar bonds ahead of the Reserve Bank of India’s (RBI) concessional swap window closing in December, aiming to benefit from reduced hedging expenses. Lenders such as HDFC Bank, ICICI Bank, Federal Bank, Punjab National Bank (PNB), State Bank of India (SBI), Bank of Baroda (BoB) and Indian Overseas Bank (IOB) are planning overseas issuances, while Kotak Mahindra Bank is still assessing the opportunity. So far, the RBI has facilitated around $3.3 billion of fundraising under this scheme, which offsets up to 1.5 percentage points of hedging costs on eligible overseas foreign currency bonds (OFCBs) and external commercial borrowings (ECBs).
After major issuances by leading banks like HDFC Bank, Axis Bank and State Bank of India (SBI), activity slowed as funding became less appealing due to a sharp increase in credit spreads, triggered by investor concerns about excess supply, as per market participants.
The rise in spreads reduced the cost benefit provided by the RBI’s swap facility. When accounting for US Treasury yields, bond spreads, coupon hedging expenses (not covered under the RBI scheme), and other related costs, the overall rupee funding cost turned comparable to domestic borrowing rates. Consequently, banks began comparing overseas bond issuances with options like bilateral or clubbed dollar loans and domestic deposits to choose the most cost-effective funding source.