Indian banks have requested the Reserve Bank of India to provide subsidized forex hedging costs to enhance overseas borrowings, according to three sources familiar with the discussions. The central bank met with treasury heads of large banks through last week, ahead of a monetary policy review on June 5, where these suggestions were discussed. Bankers proposed a mechanism under which companies can hedge dollar-denominated borrowings through lenders, while banks access lower-cost swaps from the central bank. As reported by Reuters, this mechanism is designed to help reduce the overall cost of raising overseas funds.
According to the sources, the RBI is comfortable bearing 150 basis points of the hedging cost, which should make dollar borrowing cheaper than local fundraising. However, some banks have requested higher discounts beyond this initial proposal. Bankers at the meeting estimated that such a subsidy could help raise up to $50 billion in overseas funding, as reported by Reuters. The sources requested anonymity as the matters are private, while the central bank did not respond to a Reuters email seeking comment.
The Indian rupee has been one of the worst performing Asian currencies in 2026, dropping as much as 4.7 per cent against the dollar since the Iran war began. Elevated crude oil prices and relentless outflows from Indian equities are likely to swing India's balance of payments to a large deficit this financial year, economists have warned. According to Reuters, India needs to take steps to improve its current and capital accounts, as Reserve Bank of India Governor Sanjay Malhotra stated in an interview with Mint newspaper on Monday.
Earlier this month, Reuters reported that the central bank is studying ways to mobilize dollar inflows, which could include deposits from non-resident Indians, a measure used in 2013 that garnered about $26 billion. The central bank had then allowed banks to swap dollars raised via such deposits at concessional rates. As reported by Reuters, India is considering several steps to counter the rupee depreciation, and New Delhi is monitoring the situation, with trade minister Piyush Goyal stating last week that India is considering several steps to counter the depreciation of the rupee.
