HDFC Bank raised $750M in offshore bonds using the RBI's new 1.5% swap, locking rupee funding below domestic CD rates. Other banks are expected to follow before the window closes March 31.
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HDFC Bank raised $750 million in offshore bonds, the first deal to use the Reserve Bank of India's new 1.5% fixed-rate swap for external commercial borrowings. The transaction closed with strong demand from Asian investors, bankers involved in the sale said.
The RBI introduced the swap window in July to encourage banks to bring in foreign currency without adding to rupee liquidity. Under the structure, a bank that raises dollars abroad can swap them into rupees at a fixed 1.5% premium over the dollar-rupee forward rate, effectively locking in a cheaper cost than the open market would offer.
HDFC Bank's five-year bond priced at 85 basis points over the Secured Overnight Financing Rate, a spread that, after the swap, gives the lender rupee funding at roughly 7.2% – below the 7.5% it would pay on a domestic certificate of deposit of similar tenor, according to a treasury official at a rival bank who tracks the market.
Other large banks and state-run borrowers are expected to follow. The RBI allocated a total of $5 billion under the swap facility, and bankers said at least three more issuers are preparing documentation. The window closes March 31.
The deal tests whether the swap route can become a regular channel for offshore borrowing. India's banks have raised about $12 billion in foreign-currency bonds this year, mostly through standalone dollar notes without the swap overlay. The RBI's fixed-rate structure removes the currency-hedge cost that made earlier ECB deals less attractive for rupee-based lenders.
For HDFC Bank, the bond also diversifies its funding base. The lender has relied heavily on retail deposits and domestic wholesale markets. Offshore debt gives it a second pool of liquidity at a time when credit growth is running at 15% and the banking system's loan-to-deposit ratio sits near 80%.
The bond's reception will set the pricing benchmark for the next wave of issuers. If the swap-adjusted cost stays below domestic rates, more banks will tap the window before it expires. If the dollar leg widens, the math shifts.
The RBI has not said whether it will renew the facility after March.
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