What RBI Did 

On June 5, 2026, as part of its broader package to attract foreign capital and stabilise the rupee, RBI announced a concessional forex swap facility for Public Sector Undertakings (PSUs) raising External Commercial Borrowings (ECBs). The facility runs until 30 September 2026. 

The intervention is precise: RBI offers eligible PSUs a USD/INR currency swap at a rate below the prevailing market forward premium. The forward premium — currently ~3.5% per annum — is the cost a borrower pays to lock in a future exchange rate when converting foreign currency debt back to rupees. It is the single largest friction that has made ECBs uneconomic for Indian borrowers in recent years. By subsidising this cost, RBI makes overseas borrowing materially cheaper for PSUs — and in doing so, pulls several levers simultaneously: dollar inflows into India, relief on domestic bond market supply, and a broader entrenchment of Indian PSU names in global credit markets. 

What an ECB Is — The Basic Framework

An External Commercial Borrowing is a loan or bond raised by an Indian entity — corporate, PSU, bank, or infrastructure company — from overseas lenders or capital markets. The borrowing is denominated in foreign currency (typically USD), and carries a foreign currency repayment obligation at maturity.

For Indian borrowers, ECBs offer access to deeper, more liquid global capital pools — often at lower headline coupon rates than domestic alternatives, particularly for investment-grade or quasi-sovereign names such as PFC, REC, NTPC, or EXIM Bank. The complication is currency: the borrower earns rupees domestically but must repay in dollars. That mismatch must be managed — either by leaving it unhedged (currency risk on the balance sheet) or by hedging via a forward contract or swap, which adds cost. 

The Swap Mechanics — Why This Changes the Economics

The forward premium is the market price of converting rupees to dollars at a fixed future date — or equivalently, converting a dollar liability today into a rupee-denominated one over the loan's life. At ~3.5% per annum, it is a substantial add-on to any ECB's coupon. 

A PSU raising a 5-year USD bond at a coupon of, say, 5.2% faces a fully-hedged all-in cost of roughly 8.7% in rupee terms — often higher than what it would pay on a domestic bond. The ECB route offers no net advantage. The concessional swap directly reduces this hedging cost by offering below-market swap rates, restoring the economics of overseas issuance.

The window is time-limited by design. Closing on 30 September, it creates a defined incentive period that encourages PSU treasuries to front-load overseas issuance decisions — generating a concentrated burst of dollar inflows rather than a slow trickle.

The FY26 Baseline — Scale of the Opportunity

• $42.9Bn Total India ECB issuances FY26 down ~30% from FY25's$61.2Bn
• ~11% PSU share of FY26 ECB total $4.9Bn — PFC, REC, NTPC, IOC, EXIM, NaBFID
• 5–7 yrs Typical PSU ECB tenor medium-duration offshore paper

The FY26 aggregate of $42.9 billion represents a sharp contraction — down ~30% from the $61.2 billion raised in FY25. The decline reflects higher global rates making overseas borrowing less competitive on an all-in hedged basis, rupee depreciation inflating hedging costs, and risk-off conditions compressing foreign appetite for Indian corporate credit. 

PSUs contributed $4.9 billion — 11% of a depressed total. This share is structurally low given the size, credit quality, and capital expenditure pipelines of entities like PFC, REC, NTPC, and EXIM Bank. Their collective under-representation in the ECB market is precisely the gap the concessional swap is designed to close.

Implications: Four Channels

Channel 1 — Crowding-In Relief for Domestic Bond Markets

India's domestic corporate bond market has developed a specific distortion: yields have detached from policy rates. Despite RBI cutting the repo rate, long-end corporate bond yields have not fallen commensurately — partly because better-rated PSUs are heavy, recurring issuers in the domestic market, absorbing supply and keeping spreads elevated above what the rate cycle would imply. 

When PSUs shift incremental borrowing offshore, they reduce domestic issuance supply. Fewer PSU bonds in the domestic market means less competition for available INR capital — which relieves upward pressure on domestic yields and allows the rate cut transmission that RBI intends to flow through to private sector borrowers. This is the crowding-in effect: PSUs vacating the domestic market temporarily create room for private corporates to raise capital at more rational pricing. 

Channel 2 — Direct Rupee Support

Each ECB raised by a PSU is a dollar inflow. The borrower converts USD to INR at drawdown — that conversion is a dollar sale and a rupee purchase, exerting direct upward pressure on the rupee. Cumulative ECB inflows act as a stabilising force on the USD/INR rate, complementing the FAR-driven G-Sec flows and FCNR(B) deposit mobilisation that RBI is pursuing in parallel.

If the concessional swap window recovers PSU ECB issuance meaningfully — even toward a 15–20% share of a recovering system total — the associated dollar conversion flows provide sustained, non-speculative rupee support across the September window. 

Channel 3 — Global Market Presence for Indian PSU Names

PSU names that tap global bond markets regularly build a yield curve in international credit — improving price discovery, lowering the new issue premium for successive transactions, and establishing Indian quasi-sovereign credit as a recognised asset class for global fixed income allocators.

This entrenchment compounds over time. As PSU paper becomes familiar to international investors, the buyer base broadens — from specialist EM funds to broader investment-grade allocators. Each issuance at tighter spreads lowers the cost of future overseas capital not just for the issuer but for better-rated private corporates that follow the same path. The concessional swap window accelerates this market-building process by incentivising issuances that might otherwise have been deferred.

Channel 4 — Capex Funded Without Domestic Rate Pressure

PSUs in power, infrastructure, and energy — NTPC, IOC, NaBFID — carry large capital expenditure commitments tied to India's energy transition and industrial capacity build-out. If this capex is financed domestically, it competes with sovereign borrowing and private credit demand for the same pool of INR capital. Channelling it offshore funds the same investment programme without adding to domestic yield pressure. The capex happens; the crowding-out cost does not. 

What Acceleration Could Look Like

PSUs raised $4.9 billion in FY26 — 11% of a $42.9 billion total that was itself 30% below trend. Two plausible scenarios for the September window:

Even in the base case the directional effects are unambiguous: more dollars in, fewer domestic bonds issued, lower domestic yield pressure, rupee supported. The concessional swap is the price RBI pays to shift PSU treasury behaviour within a defined window — a targeted subsidy with a hard expiry date, designed to generate a front-loaded burst of overseas issuance activity.

Summary

RBI's concessional forex swap lowers the hedging cost that made ECBs uneconomic for PSUs during FY25-26. The resulting acceleration in overseas issuances by names like PFC, REC, NTPC and EXIM Bank does four things simultaneously: relieves domestic bond market supply so yields reconnect with policy rates; generates dollar inflows that support the rupee; builds India's quasi-sovereign credit footprint in global markets; and funds PSU capex without competing for domestic INR capital. The FY26 base of $4.9 billion from PSUs — against a depressed $42.9 billion system total that is itself 30% below FY25 — leaves significant room for acceleration within the September window.

Source: SBI Research Paper