India's power financiers REC, PFC and IREDA are tapping foreign loans after the RBI's rupee-dollar swap cut hedging costs. The move may lower borrowing costs and support capex in the sector.
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Indian power and renewable energy firms are turning to overseas loans after a new Reserve Bank of India swap facility cut the cost of foreign currency borrowing, according to a report in the Economic Times.
Public-sector lenders REC, PFC and IREDA plan to raise money through external commercial borrowings (ECBs), the daily said. The RBI’s dollar-rupee swap, introduced last month, lets banks exchange dollars for rupees at a more favourable rate, reducing the hedging expense that typically makes foreign debt more expensive for Indian borrowers.
For power finance companies, the savings are material. REC and PFC typically borrow in dollars and swap into rupees to match their rupee-denominated loan books. The new facility lowers the swap cost by roughly one to two percentage points, according to traders cited by the Economic Times, making ECBs competitive with domestic bank loans.
The shift comes as India’s power sector faces a heavy borrowing requirement. REC and PFC together account for a large share of lending to state electricity boards and renewable projects. Cheaper dollar funding could allow them to offer more competitive rates to borrowers and improve their own net interest margins.
IREDA, the state-run renewable energy finance arm, is also exploring ECBs under the new swap mechanism, the report said. The company has been expanding its loan book as India targets 500 GW of non-fossil fuel capacity by 2030.
The RBI facility is designed to boost dollar inflows without draining reserves, analysts said. By offering a direct swap rather than a spot-market intervention, the central bank absorbs rupee liquidity while retaining the foreign currency. That makes the tool attractive for firms that need dollars for imports or debt repayment and for lenders that fund projects in dollars.
No specific borrowing amounts have been disclosed. The Economic Times said REC, PFC and IREDA are still evaluating deal sizes and tenors. The companies did not respond to requests for comment.
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