RBI rules allow Indian companies that meet minimum net worth and adequate risk management eligibility requirements that have rupee liabilities to use currency swaps to transform those liabilities into foreign-currency exposure.
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FRANCIS MASCARENHAS
Billions of dollars of FX swaps by the central bank have shifted the economics of cross-currency funding for Indian companies, creating an opportunity to access dollar funding at a relatively lower cost.
The Reserve Bank of India has been draining surplus liquidity in India’s banking system through dollar-rupee swaps that have spurred a jump in FX forward premiums. Higher forward premiums make currency swaps a more attractive route to raise dollar funds by lowering their effective cost.
Surging US Treasury yields, underpinned by inflation pressures, oil prices and resilient economic activity along with expectations of more Federal Reserve rate hikes this year are all making it more expensive for Indian firms to borrow in dollars directly.
In this environment (of higher US yields and FX premiums), borrowing in rupees and using the forward market to convert the liability into dollars would “result in a lower all-in US dollar funding cost” than direct overseas borrowing, said Sameer Karyatt, managing director and head of trading at DBS Bank India.
“The extent of the cost advantage would depend on the customer’s credit rating and the relative borrowing spreads available in the domestic and overseas markets.”
RBI rules allow Indian companies that meet minimum net worth and adequate risk management eligibility requirements that have rupee liabilities to use currency swaps to transform those liabilities into foreign-currency exposure.
Rupee-dollar swap pricing has jumped across tenors, with implied ratesfor two-, three-, and five-year swaps rising 90 to 110 basis points.
Banks make a pitch
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.
In two recent structures seen by Reuters, companies could convert rupee borrowing into dollar funding at rates below the prevailing US dollar funding rate, with the discount varying by tenor.
Corporate borrowers are typically looking for up to three-year tenors, while asset-liability desks at banks are considering longer-dated structures to raise dollar funding for overseas and GIFT City branches, a senior treasury official at a foreign lender said, requesting anonymity because he was not authorised to speak to the media.
Published on October 1, 2026
