Indian banks and companies are urging the Reserve Bank of India for assistance with offshore debt fundraising as external commercial borrowings (ECBs) slowed to $43 billion in FY26 from $61 billion the previous fiscal. According to reports from The Economic Times, bankers have made informal representations to the RBI over the past two weeks, seeking mechanisms to reduce effective hedging costs that have made overseas borrowing significantly more expensive than domestic funding despite ample global liquidity. Annualised hedging costs have risen to around 3.5% compared with nearly 2% earlier, eroding the cost advantage of dollar borrowings for Indian companies.
Under the proposal being discussed informally, companies would hedge through banks, while banks would access a lower-cost facility from RBI. As reported by The Economic Times, suggestions range from RBI subsidising hedging costs to creating a dedicated facility through banks. Bankers estimate that offshore borrowing flows could rise by an additional $30 billion if hedging costs were to moderate materially. 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%, according to bankers in the debt capital markets. This 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. A senior banker told The Economic Times that there is enough debt capacity available both onshore and offshore, but the real issue is the cost of hedging.
Several infrastructure and financial services companies continue to explore overseas financing but are struggling to justify costs after factoring in currency protection expenses. As reported by The Economic Times, 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. A subsidised hedging framework could help revive offshore debt flows into India, similar to the concessional swap windows and support mechanisms extended in the past for FCNR(B) deposits.
The increasing geopolitical uncertainty and global market volatility have made equity fundraising more difficult, especially for lower-rated and mid-market issuers. While investor appetite for India remains strong, valuation gaps between buyers and sellers continue to slow transactions and IPO activity. According to The Economic Times, 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.
