Indian Banks Tap Offshore Markets for Dollar Funding Amid RBI Push

Indian banks are actively raising significant dollar funds offshore through bond and loan issuances, with global financial institutions facilitating these deals. This intensified fundraising effort is primarily aimed at attracting capital from non-resident Indians worldwide, a strategy supported by recent measures from the Reserve Bank of India (RBI).

Global banks, including Mitsubishi UFJ Financial Group, Standard Chartered Plc, Citigroup Inc., HSBC Holdings Plc, and Barclays Plc, are engaged in arranging these dollar debt deals. Executives indicate a strong pipeline of business, with projections suggesting Indian banks could raise nearly $43 billion through offshore loans by 2026. This figure includes an estimated $30 billion for the remainder of 2026, adding to the $12.7 billion already secured this year.

Separately, Indian banks and state-run financiers are expected to raise up to $10 billion from the global bond market for the rest of the year. This would build upon the $10.8 billion raised so far, marking a five-year high according to Bloomberg data.

Foreign lenders with substantial dollar balance sheets are well-positioned to provide this funding or assist with bond sales. Representatives for Barclays and Citigroup declined to comment, while HSBC did not immediately reply to a request for comment.

Shashank Joshi, deputy chief executive officer at MUFG Bank in India, noted that the RBI's initiatives to increase foreign inflows have revitalized the dollar debt market, leading many borrowers to approach foreign banks. He anticipates record sums in dollar bond and loan issuances by 2026.

The drive for dollars follows the RBI's campaign to attract funds from approximately 35 million non-resident Indians globally, aiming to support the Indian Rupee and bolster foreign-exchange reserves. Banks are offering interest rates above 7% on these dollar deposits, which are available until September 30. The RBI has also permitted banks to lend against these deposits, with some offering loans up to 19 times the deposit amount.

Additionally, the RBI is providing a concessional foreign exchange swap scheme for banks and state-run firms, which reduces hedging costs for overseas borrowings. This facility is set to conclude by December 31.

Prathamesh Sahasrabudhe, managing director and head of capital markets for India and South Asia at Standard Chartered Bank, suggested that a significant portion of foreign currency funding will likely be channeled through loans, as dollar bond issuance typically takes longer.

In the past two months, Indian lenders such as HDFC Bank Ltd., Axis Bank Ltd., State Bank of India, and Power Finance Corp. accounted for 40%, or $4.2 billion, of dollar bond sales. Local lenders like Punjab National Bank have approved plans to raise up to $1.5 billion in overseas debt, while Bank of Baroda is also considering foreign currency bond fundraising. Union Bank of India intends to raise up to $2 billion through a medium-term note program via its Dubai and/or Sydney branches.

Several banks are in discussions with foreign institutions for bilateral loans. State Bank of India, for example, is arranging a loan of approximately $500 million from two lenders.