HDFC Bank And Four Private Lenders Eye Up To $3 Billion In Dollar Debt

Indian private lenders are looking to raise up to $3 billion through dollar bonds or overseas loans as banks tap the Reserve Bank of India’s (RBI) concessional foreign exchange swap facility.

HDFC Bank is considering a dollar bond issue of up to $1 billion, while Federal Bank, Kotak Mahindra Bank, RBL Bank and Yes Bank may raise $250 million to $500 million each.

The plans come as banks look for cheaper overseas funding before the RBI’s special swap window closes.

However, HDFC Bank share price today was down 0.16% at 12:55 PM, hitting a 2-year low on the back of foreign investors withdrawing. Yes Bank shares also fell 0.22% on the National Stock Exchange (NSE) at around the same time. Investors tracking the share prices may also watch how the proposed fundraising plans affect the lenders’ funding costs and capital position.

Why Are Indian Banks Turning To Dollar Funding?

HDFC Bank is in talks with overseas lenders to arrange a dollar bond sale that could happen in the next few weeks, according to people familiar with the matter. The terms, however, are still being worked out and could change.

For HDFC Bank, this would be its second dollar bond issue this year. The lender raised $750 million through a five-year dollar bond in June, securing its tightest-ever spread on a dollar issue.

Federal Bank, Kotak Mahindra Bank, RBL Bank, and Yes Bank are separately considering international borrowings. The four lenders have not been regular issuers in the dollar debt market.

The RBI’s swap facility has made such borrowing more attractive. Introduced in June, it offers a fixed swap rate of 1.5% a year for eligible overseas foreign currency borrowings with a minimum maturity of three years. The facility is available until 31 December 2026.

What Is Driving The Rush Among Lenders?

The lower hedging cost comes at a time when Indian banks are looking for additional sources of foreign currency funding. The RBI introduced the facility as part of measures aimed at supporting foreign capital inflows and easing pressure on the rupee. Indian banking stocks had also gained after the facility was announced in June.

State Bank of India is also expected to enter the dollar bond market with a five-year benchmark issue, adding to the activity among Indian lenders.

Banks are also attracting more dollar deposits from non-resident Indians (NRIs) under the expanded Foreign Currency Non-Resident (Bank) [FCNR(B)] deposit window. HDFC Bank had mobilised about $5.42 billion in FCNR deposits as of 30 July, while ICICI Bank had about $6.06 billion, according to RBI data.

With the FCNR deposit window closing on 30 September and the overseas borrowing facility running until December, lenders have a limited period to make use of the favourable funding conditions.

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