Indian Banks Urge RBI for Hedging Support to Boost Offshore Debt

Indian banks and companies are asking the Reserve Bank of India for help with offshore debt. High costs to protect against currency changes make borrowing abroad more expensive than at home. This is slowing down foreign fundraising. A new support system could lower these costs. This would help bring more foreign money into India and support its economy.

Indian lenders and corporates have urged the central bank to consider a dedicated hedging support framework to revive offshore debt fundraising, multiple banking officials told ET, after external commercial borrowings (ECBs) slowed to $43 billion in FY26 from $61 billion the previous fiscal.

Bankers have made informal representations to the Reserve Bank of India (RBI) over the past two weeks, seeking mechanisms to reduce effective hedging costs, which they say have made overseas borrowing significantly more expensive than domestic funding despite ample global liquidity. “The issue today is not liquidity or availability of capital.

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There is enough debt capacity available both onshore and offshore," a senior banker told ET. “The real issue is the cost of hedging." Suggestions range from RBI subsidising hedging costs to creating a dedicated facility through banks. Under the proposal being discussed informally, companies would hedge through banks, while banks would in turn access a lower-cost facility from RBI.

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Bankers estimate that offshore borrowing flows could rise by an additional $30 billion if hedging costs were to moderate materially. Annualised hedging costs have risen to around 3.5%.

Helping balance of payments

This is compared with nearly 2% earlier, eroding the cost advantage of dollar borrowings for Indian companies. The rupee has lost about 3% so far in FY27, after having retreated around 10% against the US dollar in FY26. ECB borrowings routed through GIFT City are being priced at around 8.25%, including a base rate of 4.75% and hedging costs of about 3.50%, bankers in the debt capital markets told ET.

It compares with the minimum domestic borrowing cost of nearly 7.25% in the Indian market for high rated corporates, reducing the pricing advantage of offshore funding. “In an environment where both FDI and FPI flows have weakened, a push toward offshore debt inflows can provide support to India’s balance of payments,” said another banking official.

“However, elevated hedging cost is a key deterrent for corporates looking to raise funds through ECBs or offshore bond issuances. A subsidised hedging framework, similar to the FCNR deposit schemes and bond programmes used in the past, could help revive offshore debt flows into India.”

Several infrastructure and financial services companies continue to explore overseas financing but are struggling to justify costs after factoring in currency protection expenses. Right now, those hedge costs are high, making fully hedged ECBs more expensive than rupee loans. So, bankers believe if the RBI offers banks cheaper dollar swap lines or a concessional hedging facility, banks can pass on lower hedge costs to corporates.

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That will reduce the all-in cost of offshore borrowing. Bankers said the industry has proposed the RBI create a dedicated hedging facility routed through banks, allowing corporates to access lower-cost currency protection under the ECB route. Some executives drew parallels with the concessional swap windows and support mechanisms extended in the past for FCNR(B) deposits.

The increasing geopolitical uncertainty and global market volatility have also made equity fundraising more difficult, especially for lowerrated and mid-market issuers. While investor appetite for India remains strong, valuation gaps between buyers and sellers continue to slow transactions and IPO activity. “Over the last few years, offshore markets have seen limited supply of Indian debt, resulting in strong appetite from global investors for Indian credit,” another DCM executive said.

“Dollar bonds issued by Indian corporates are currently trading at relatively tight spreads due to this supply-demand imbalance, creating an attractive opportunity for issuers to raise funds at competitive costs.

A subsidised hedging mechanism would further enhance the attractiveness of offshore borrowing versus domestic market funding.”