Indian dollar bonds planned by three state-run banks, worth as much as $2.5 billion combined, are on hold as higher US Treasury yields and hedging costs make overseas borrowing more expensive. A fourth lender, Karur Vysya Bank, is waiting for more favorable pricing.

Key Takeaways

  • Canara Bank, Punjab National Bank and Bank of India decided not to proceed with planned dollar debt sales after initiating talks.
  • Bankers estimated that dollar debt would cost a state-run lender 70 to 100 basis points more than one-year rupee funding.
  • The Reserve Bank of India’s subsidized hedging facility runs from June through December 2026.

Why Indian dollar bonds are being deferred

The three state-run lenders had planned to raise as much as $2.5 billion under the Reserve Bank of India’s subsidized hedging facility, but decided not to proceed, according to bank officials and merchant bankers who spoke anonymously because they were not authorized to comment publicly.

Canara Bank Managing Director and Chief Executive Brajesh Kumar Singh confirmed that the bank had decided against its planned sale because rates had risen sharply. Punjab National Bank and Bank of India did not respond to requests for comment.

The 10-year US Treasury yield climbed 25 basis points to around 5% over the preceding two months, while the rupee fell 0.8% against the dollar. Bankers said those moves, alongside higher hedging costs, made dollar fundraising expensive relative to rupee-denominated funding.

Hedging facility and market conditions

The RBI facility allows banks and state-run companies to raise funds overseas with subsidized hedging between June and December 2026, reducing the cost of managing currency risk. Indian lenders have already raised $13 billion through dollar bonds under the scheme, including an aggregate $3.5 billion raised by five state-run banks through private placements and public issues.

Lim Ze Hao, associate director for APAC financials at CreditSights, said heavier supply from Indian lenders had contributed to wider secondary-market spreads and higher premiums on new issues. A broader risk-off move in Asian credit markets had added pressure, Lim said.

Lim expects some lenders in the pipeline to come to market if dollar funding conditions improve, particularly because of the incentive to use the RBI facility before it expires.

Karur Vysya Bank waits for pricing

Karur Vysya Bank also considered a dollar debt sale but is waiting for favorable pricing. At a post-earnings conference call earlier in October, Managing Director and Chief Executive Ramesh Babu said the bank might try to conclude a deal within roughly a month if pricing and funding were favorable. That was a conditional plan, not a completed transaction.

Next milestone

The RBI’s subsidized hedging facility is scheduled to expire in December 2026.

Read More News

More FinanceVelix news

Disclaimer

This FinanceVelix article provides general information, not personalized financial, investment, legal, or tax advice. Market prices, interest rates and economic conditions can change; investments carry a risk of loss. Facts reflect the material available when published and may change. Check important information independently and consult a qualified professional when needed. Mentioning an asset, company, or service is not an endorsement.