RBI’s forex swaps create opening for Indian firms to tap dollar funding at lower cost
Banks are approaching corporate borrowers with structures in which a rupee loan, commercial paper or non-convertible debenture is combined with a dollar-rupee cross-currency swap
The Reserve Bank of India (RBI) has introduced billions of dollars in forex swaps, giving Indian firms a more cost-effective way to access dollar funding. The bank has been using dollar-rupee swaps to reduce excess liquidity in the Indian banking system, which has driven up forward premiums. As US Treasury yields surge due to inflation, oil prices, economic growth, and Federal Reserve rate hikes, borrowing dollars directly becomes more expensive for Indian companies.
In this scenario, borrowing in rupees and converting it to dollars using forward contracts can result in lower overall US dollar funding costs. RBI permits eligible Indian companies, with sufficient net worth and risk management practices and rupee liabilities, to utilize currency swaps to change liabilities into foreign currency exposure.
Swap prices have increased across tenors, with increases ranging from 90 to 110 basis points for two-, three-, and five-year swaps. Banks are pitching corporate borrowers structures involving rupee loans, commercial paper, or non-convertible debentures combined with dollar-rupee swaps. Companies are typically interested in up to three-year tenors, while banks are exploring longer-dated structures to raise funds for their overseas and GIFT City branches.
Written by urgent.news from Hindu BusinessLine's reporting — not their text. Machine-written — may contain errors; check the original before relying on it.
