Several Indian banks have postponed plans to raise money by selling bonds in US dollars. The reason is simple: borrowing abroad has become more expensive because US interest rates, currency-hedging costs, and the weaker rupee have all moved against them. Canara Bank, Punjab National Bank, and Bank of India had considered raising as much as $2.5 billion together, while Karur Vysya Bank is waiting for better conditions.
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What Is a Dollar Bond?
A dollar bond is a loan raised by selling bonds to investors, with repayments made in US dollars. Indian banks use this route to raise large amounts of money from overseas investors.
But there is a catch: if the rupee weakens against the dollar, repaying the loan in dollars becomes costlier in rupee terms. Banks often buy currency protection (called hedging) to manage this risk. That protection now costs more.
Why Borrowing Abroad Became Expensive
Over the past two months, the yield on 10-year US government bonds has risen by about 25 basis points to around 5%. In simple terms, investors now expect a higher return before they lend money.
At the same time, the rupee has weakened by 0.8%, and hedging costs have increased. For government-owned banks, dollar borrowing is now estimated to cost 70-100 basis points more than borrowing in rupees for one year.
Dollar Bonds vs. Rupee Borrowing
| Factor | Dollar-bond borrowing | Rupee borrowing | What it means for banks |
| Currency risk | Repayment in US dollars | Repayment in rupees | Dollar loans need costly hedging. |
| Current cost | About 70–100 bps more expensive than one-year rupee funding | Cheaper for now | Banks can save by delaying dollar issuance. |
| Market sensitivity | Driven by US rates, rupee movement, and global sentiment | Driven mainly by domestic liquidity and policy rates | Dollar issuance is harder to time now. |
| Best use case | When global rates and hedging costs are favorable | When domestic funding is cheaper | Current conditions favor rupee borrowing. |
Which Banks Have Postponed Plans?
Several lenders had been exploring dollar-bond sales under the RBI’s subsidized hedging facility but have held back as borrowing costs climbed.
- Canara Bank: Withdrew from its planned dollar-bond sale after rates rose sharply.
- Punjab National Bank: Had begun discussions for a possible issuance but deferred it.
- Bank of India: Also paused its proposed dollar-debt sale amid unfavorable market conditions.
- Karur Vysya Bank: Considered a dollar issue but is waiting for better pricing before deciding.
PNB and Bank of India did not respond to Reuters’ request for comment.
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RBI’s Support Window
The Reserve Bank of India has allowed banks and state-run companies to raise money overseas and use a subsidized hedging facility from June to December. This facility helps reduce the cost of protecting against currency swings.
Indian banks have already raised about $13 billion through dollar bonds under this scheme. Five government-owned banks account for $3.5 billion of that amount.
What Happens Next?
Banks may return to the dollar-bond market if US interest rates fall, the rupee stabilizes, or hedging becomes cheaper. Credit research firm CreditSights expects some lenders to come back before the RBI facility ends in December.
For now, the banks are choosing to wait. Rather than pay a high price for overseas money, they can borrow more cheaply in rupees at home.
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