Indian Banks Seek RBI Hedging Subsidy for Dollar Funding
Lenders are proposing a mechanism where the Reserve Bank of India subsidizes forex hedging costs to help raise up to 50 billion dollars. The move aims to stabilize the rupee and improve capital accounts amid elevated oil prices and equity outflows.
Lenders in India requested the Reserve Bank of India (RBI) provide a 150-basis-point subsidy on forex hedging to raise $50 billion in overseas funding. The proposal follows a 4.7% drop in the rupee against the dollar since the Iran war began. If approved, the measure would make dollar-denominated borrowing cheaper than domestic fundraises to stabilize the national currency.
### Reducing the Cost of Dollar Inflows Treasury heads of major banks met with the RBI throughout last week to discuss the swap mechanism. Under the proposed plan, companies would hedge dollar borrowings through lenders while banks access discounted swaps from the central bank. Bankers familiar with the discussions said the RBI is comfortable bearing 150 basis points of the cost, though some banks requested larger discounts.
