Indian financial institutions have achieved a historic milestone by selling a record $9 billion in dollar bonds so far this year, surpassing the previous record of $7.92 billion set in 2019, according to latest data compiled by Bloomberg. The surge has been particularly pronounced in August, with at least four issuers including State Bank of India, ICICI Bank Ltd., and Axis Bank Ltd. tapping the market, marking the busiest-ever month for such borrowings. ICICI Bank Ltd. raised $750 million from US-denominated debt on Monday, putting the 2026 total so far at $8.85 billion, as reported by The Hindu BusinessLine. This unprecedented activity reflects lenders' rapid response to favorable central bank policies and improved market conditions, with the offerings reaching $8 billion Thursday as reported by Business Standard.
The record-breaking issuance has been significantly accelerated by the Reserve Bank of India's announcement in early June of a concessional foreign-exchange swap facility for banks and state-run firms, as reported by Bloomberg. This facility offers a fixed annual rate of 1.5% for an average maturity of at least three years, which is lower than current market costs. The special window remains open until December 31, prompting more lenders to accelerate their offerings. About two-thirds of dollar borrowings by Indian firms this year have come from financial institutions, demonstrating how banks are responding to the central bank's efforts to boost capital inflows after a tepid market earlier in the year due to high hedging costs. The central bank had also set up a special window to attract foreign-currency deposits, surprising traders on Friday by closing that facility a month ahead of schedule after the nation drew more than $50 billion from its citizens overseas, leading to a selloff in shorter-tenor India bonds.
State Bank of India has successfully raised USD 500 million through bonds issued by its London branch at a coupon rate of 5.25 per cent. According to the latest SBI press release, the bonds are benchmarked against the 5-year US Treasury and priced at a spread of 88 basis points over the benchmark. The ''''''''Regulation S'''''''' tagged instruments are exempt from registration requirements of the US Securities and Exchange Commission (SEC) and can be issued outside the United States. The transaction was executed by the state-owned lender acting through its London branch, with the issuance benefiting from the favorable RBI facility that has lowered hedging costs on overseas borrowings. The surge has spanned both private- and public-sector banks, with Kotak Mahindra Bank Ltd. and Yes Bank Ltd. having mandated advisers for potential benchmark-sized dollar bond offerings, as reported by Citigroup Inc.
The bond issuance received an overwhelming response with a peak order book of USD 2.46 billion, involving 145 investors across geographies. As reported by SBI's official press release, the transaction witnessed strong buying interest from institutional investors across multiple geographies. Following the conclusion of the bond pricing process, the debt instruments will be listed on SGX-ST, India INX and NSE-IX. The initial price guidance was revised downwards from the T+120 basis points area to T+88 basis points, resulting in an overall price compression of 32 basis points due to strong investor demand during book building. 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, with the surge demonstrating containment in borrowing costs for issuers from India.
The tight pricing achieved amid evolving global macro environment has demonstrated containment in borrowing costs for issuers from India. 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 as reported by The Hindu BusinessLine. The pipeline is set to grow further with these upcoming offerings. The surge has spanned both private- and public-sector banks, according to Citigroup Inc. Nicholas Yap, head of Asia credit desk analysts at Nomura Holdings Inc, expects lenders to rush to the dollar bond market over the next few weeks after the RBI shut the deposit swap window early. "Post this near-term surge, issuance will likely taper off, as the aforementioned impetus will no longer be there and still elevated hedging costs make it uneconomical for banks to issue offshore," Yap noted. The facility offers a fixed annual rate of 1.5% for an average maturity of at least three years, which is lower than current market costs, supporting domestic liquidity and credit growth while the central bank continues to boost capital inflows through favorable policy measures.
