Indian Lenders Cross $8.8 Billion in Dollar Bond Sales Following RBI Swap Facility

Indian financial institutions have sold a record of almost $9 billion in dollar bonds this year, as lenders rush to capitalise on a central bank facility that lowers hedging costs on overseas borrowings.

ICICI Bank Ltd. raised $750 million from US-denominated debt, bringing the total for the year so far to $8.85 billion, according to data compiled by Bloomberg. This figure has already exceeded the previous full-year record of $7.92 billion set in 2019, and the total could rise further before the end of the year. Additional activity is expected as Kotak Mahindra Bank Ltd. has set an initial price guidance for a planned five-year dollar issuance, and Yes Bank Ltd. has hired advisers for another potential dollar bond offering, according to people familiar with the matter.

The deals have gathered pace following an announcement by the Reserve Bank of India in early June regarding a concessional foreign-exchange swap facility for banks and state-run firms. Designed to shore up a weakening rupee, the facility boosts domestic liquidity and supports credit growth. The special borrowing window remains open until December 31, prompting multiple lenders to accelerate their offerings.

Concurrently, the central bank maintained another special window aimed at attracting foreign-currency deposits. However, it recently closed that specific facility a month ahead of schedule after the nation drew more than $50 billion from its citizens overseas. This premature closure led to a selloff in shorter-tenor India bonds due to expectations of reduced rupee liquidity to support demand. The deadline for the overseas borrowing facility, however, remains unchanged for now.

Nicholas Yap, head of Asia credit desk analysts at Nomura Holdings Inc., noted that the recent surge in dollar bond issuance by Indian banks has primarily served to extend leverage to attract deposits from the nation's overseas residents. Yap expects lenders to continue rushing to the dollar bond market over the next few weeks following the early closure of the deposit swap window. He added that issuance will likely taper off afterward as that impetus ends and elevated hedging costs resume making offshore issuance uneconomical for banks.

Approximately two-thirds of the dollar borrowings by Indian firms this year originated from financial institutions. This indicates how lenders are responding to central bank efforts to boost capital inflows following a tepid market earlier in the year caused by high hedging costs. The facility offers a fixed annual rate of 1.5 per cent for an average maturity of at least three years, which sits lower than current market costs.

According to Citigroup Inc., the surge has spanned both private- and public-sector banks. Strong global order books have allowed recent deals to price tighter than initial guidance, underscoring international investor appetite for exposure to Indian financial-sector credit.

"The record rise in dollar bond sales by Indian banks demonstrates how targeted regulatory support can effectively revive institutional capital-raising activity. When central banks implement measures to lower hedging costs, financial institutions naturally respond to optimize their overseas borrowing strategies. However, as upcoming deadlines approach and policy windows shift, banks must carefully evaluate long-term liquidity and hedging economics to maintain sustainable capital inflows." — Dr. Shishir Gupta, Founder & CEO, StartupLanes