Indian banks have raised $12 billion in overseas debt, leveraging the Reserve Bank of India's (RBI) special swap window announced on June 5. This influx of forex debt issuance, led by major banks like ICICI Bank, Kotak Mahindra Bank, and HDFC Bank, marks a significant uptick in foreign currency fundraising.
This week, Indian lenders experienced their busiest period for forex debt issuance, collectively raising $4.4 billion. The funds are primarily intended to support foreign currency non-resident (bank) [FCNR (B)] deposits, which qualify for swap support if booked by August 31. Of the total $12 billion raised, $10 billion was secured following the RBI's announcement of special dispensation for forex inflows.
Despite the substantial supply, the cost implications have been minimal. According to Vinod Venkatesh, co-head of financing solutions at HSBC India, spreads on Indian bank bonds have only widened by about 5 basis points since the start of the year. This reflects investor confidence in the sector's credit strength.
“The amounts raised by the sector shows the strength of Indian banking.”
Arup Rakshit, head, treasury, HDFC Bank
Investor demand has been robust, with deals being oversubscribed by an average of 2.89 times, as noted by Gaurav Bhagat, head of financial institutions at MUFG. This favorable market response is attributed to the sector's credit quality and the perceived opportunity to gain exposure to Indian banks.
HSBC's Venkatesh anticipates a potential decline in bond supply from Indian banks once the FCNR(B)-related concessional swap window closes. However, he expects continued activity from corporates and non-banking financial companies (NBFCs).
“Initial concerns around oversupply seem to have faded, as investors have focused more on the sector's underlying credit strength.”
Vinod Venkatesh, co-head, financing solutions, HSBC India
Background
The RBI's special swap window, announced in June, has facilitated a surge in forex debt issuance by Indian banks. This move is part of a broader strategy to bolster foreign currency reserves and support FCNR(B) deposits.
With the FCNR(B) swap window set to close and another concessional swap window expiring in December, market participants will be watching for further issuance activity. The ongoing demand and favorable market conditions suggest that Indian banks will continue to explore opportunities in the international debt markets.
