Indian banks seek hedging cost subsidy from RBI to raise dollar funding, sources say

MUMBAI: Indian banks have sought subsidised forex hedging costs from the Reserve Bank of India to raise overseas borrowings, according to three sources, as the central bank seeks to shore up dollar inflows into the economy. The central bank met with treasury heads of large banks through last week, ahead of a monetary policy review on June 5, where the suggestions were discussed, the sources who are familiar with the discussions, said. Bankers at the meeting proposed a mechanism under which companies can hedge dollar-denominated borrowings through lenders, while banks access lower-cost swaps from the central bank, according to the sources. They suggested that this will help reduce the overall cost of raising overseas funds. “As per the latest discussions, the RBI is comfortable at bearing 150 basis points of the hedging cost, which should make the dollar borrowing cheaper than local fundraise, but some banks have requested for higher discounts,” one of the sources said. India’s central bank approves 2.87 trillion Indian rupee surplus transfer to government Bankers were of the view that such a subsidy could help raise up to $50 billion, two of the sources said. Reuters could not determine whether this subsidy will only be available to select borrowers or for all. The sources requested anonymity as the matters are private, while the central bank did not respond to a Reuters email seeking comment. Elevated crude oil prices and relentless outflows from Indian equities are likely to swing India’s balance of payments to a large deficit this financial year, economists have warned. The Indian rupee has been one of the worst performing Asian currencies so far in 2026, dropping as much as 4.7% against the dollar since the Iran war began. India needs to take steps to improve its current and capital accounts, Reserve Bank of India Governor Sanjay Malhotra said in an interview with Mint newspaper on Monday. Earlier this month Reuters had reported that the central bank is studying ways to mobilise dollar inflows - which could include deposits from non-resident Indians, a measure used in 2013 that garnered about $26 billion - to stabilise the rupee. The central bank had then allowed banks to swap dollars raised via such deposits at concessional rates. India is considering several steps to counter the depreciation of the rupee, and New Delhi is monitoring the situation, trade minister Piyush Goyal said last week.

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