RBI's special ECB window may attract up to $20 billion in overseas inflows

State-owned entities are expected to lead fundraising under the RBI's concessional swap facility, with market participants estimating inflows of $15-20 billion

Public sector undertakings (PSUs) could raise up to $20 billion through external commercial borrowings (ECBs) after the Reserve Bank of India (RBI) operationalised its concessional forex swap facility for overseas loans, market participants said.

 

State-owned non-banking financial companies (NBFCs) are seen as the first movers, with the Power Finance Corporation (PFC) issuing a notice inviting bids to raise funds through ECBs.

 

"PFC has floated request for proposal (RFP) for inviting bids to raise ECB by way of foreign currency term loan (FCTL) on invitation basis only," the notice said. "The detailed RFP containing terms and conditions of the bidding may be emailed by PFC. The last date and time of submission of bids for FCTL will be June 22, 2026," it added.

 

On June 5, the RBI said ECBs of average maturity of three years and above by PSUs will be eligible for a separate swap facility. Swaps will be undertaken at a fixed rate of 1.5 per cent per annum compounded semi-annually, which is around 1.3 per cent below market rates.

 

The RBI swap facility came into effect on June 8 and will remain open until 15 January 2027 for eligible ECB drawdowns.

 

“The PSU ECB swap facility will offer further incentives to PSUs to borrow in USD (ECB) and swap into INR, similar to the 2013 RBI forex swap window. This may see an uptake of USD 15-20 billion over the next few months, but demand will be constrained by the fact that global rates are still elevated,” Barclays said in a report.

 

“By reducing hedging costs, it makes external borrowing more attractive for eligible entities, easing pressure on domestic credit markets,” a report by State Bank of India (SBI) said. SBI expects around $15-20 billion inflows through the route.

 

In 2025-26 (FY26), inflows through ECB and FCCB (foreign currency convertible bond) declined by 30 per cent to $42.9 billion from $61.2 billion in FY25.

 

“The moderation in ECB reflects both favourable domestic interest rates following monetary policy easing, and pivot on rates trajectory by the US Fed along with higher hedging costs making ECB loans costly,” the SBI report added.

 

Regular overseas borrowers among state-owned entities are likely to be among the first to test the market under this framework. Market participants said a few approvals for foreign borrowings are already in the pipeline and issuances could be rolled out shortly.

 

The concessional dollar-rupee forex swap facility came into effect on Monday. The facility covers eligible ECBs raised by PSUs and overseas foreign currency borrowings (OFCBs) by banks.

 

"With US yields already elevated, the extent of the benefit will depend on the final pricing and how much of the hedging cost is absorbed. If the all-in cost is even on a par with prevailing domestic bond yields, it would make economic sense for issuers to access overseas markets," said a market participant.

 

"Regular borrowers such as PFC, Nabard, IRFC, and other government-owned entities already have offshore borrowing plans in the pipeline, and could roll out issuances as early as this month. Oil marketing companies (OMCs) could also tap the market if funding costs turn attractive," the person added.

 

However, market participants cautioned that the narrow interest rate differential between domestic and overseas borrowings could limit the attractiveness of the route despite the RBI's support. Elevated US treasury yields have compressed the potential savings from offshore fundraising, posing a challenge for issuers seeking a meaningful cost advantage.

 

"The issuer pipeline is clearly building up, but the pace and scale of fundraising will ultimately depend on investor appetite," another market participant said. "With a window of opportunity currently open and an estimated 3 per cent cost advantage, borrowers may choose to accelerate their overseas fundraising plans, including pre-funding requirements for projects scheduled for the coming year. The relatively narrow interest rate differential could also act as a constraint, as some borrowers may prefer to stay in the domestic market unless offshore funding offers a clear pricing benefit," he added.