HSBC buys at least US$3 billion of India bonds after deposit boost

HSBC Holdings has acquired at least US$3 billion of Indian government bonds since July, utilizing a substantial sum of funds garnered through a special diaspora dollar deposit program, according to sources familiar with the matter. The lender has been actively investing in 5-year maturity bonds over the past few months, seeking avenues to park the funds collected under the Reserve Bank of India's FCNR(B) program.

HSBC has surpassed global competitors in collecting funds under the program, with the latest data indicating the lender had amassed US$6.3 billion by July 30. The bank's total accumulation has now risen to over US$10 billion, as per the sources. HSBC's acquisition underscores the positive response to the central bank's dollar inflow program, which has supported the rupee and stabilized borrowing costs in the economy.

As global bond markets grapple with concerns over excessive debt supply, Indian sovereign notes have benefited from the significant cash infusion from foreign inflows. Consequently, yields on 5-year government notes have fallen by approximately 31 basis points since June 5, following the RBI's announcement of the overseas dollar window to attract foreign capital and stabilize the rupee.

This decline surpasses the 12-basis point reduction in the benchmark 10-year yield. The lower borrowing costs provide relief to the economy as geopolitical tensions, such as the US-Iran war, keep oil prices high and strain India's external finances.