RBI Just Made Dollar Debt Cheaper Than Rupee Debt. For PSUs.

On 8 June 2026 the RBI opened a window that, for a specific set of borrowers, makes dollar debt cheaper than rupee debt. It will swap dollars for rupees at a fixed 1.5% a year for public-sector borrowers raising money abroad. Run the numbers and a PSU can fund a three-to-five-year borrowing at an all-in 6.50% to 6.75% in rupees, against about 7.25% for the same name's domestic AAA bond. That is roughly 75 basis points of saving, and the whole of it comes from one number.

The window is narrow and deliberate. It is open only to PSUs and only until the end of the year, and it lands while the rupee is near its weakest ever, around 95.45 to the dollar. Below, we walk the bridge from a dollar loan to a rupee cost, anchor it against what PSUs actually pay in the bond market today, and read why the cheapness is real rather than a free lunch.

What RBI actually opened

The facility is a plain US Dollar-Rupee buy-sell swap, routed through the borrower's Authorised Dealer bank. It is tightly scoped, and the scope is the story.

Read those four boxes together and the intent is clear. The rupee is under pressure, and RBI wants dollars to flow in. Rather than sell reserves to defend the currency, it is paying a small subsidy to pull private dollar funding onshore through the country's strongest credits. The swap premium it earns is real income; the dollars it takes in are real inflows.

The bridge: dollar debt, hedged, lands below rupee debt

Start with a dollar. A PSU raises a five-year borrowing abroad at roughly 4.0%, the going rate for high-grade dollar funding. On its own that is an open currency risk: if the rupee falls, the repayment balloons. The swap closes it. The borrower hands the rupee leg to RBI at a fixed 1.5%, and its bank adds an arranging margin of about 1.0 to 1.25%. Add the three and you have a rupee cost of 6.50% to 6.75%.

The chart ranks the routes a PSU can take, cheapest at the top. The amber bar, the ECB hedged through the RBI swap, sits below the deep-blue bar for the same borrower's domestic AAA bond. Dollar debt, fully hedged, comes in under rupee debt. That is the headline, and it is not how the arithmetic usually works.

Why the subsidy is the whole edge

Here is the part worth slowing down on, because it is where most quick takes go wrong. Hedge the currency at the market rate, about 3.0% for this tenor, and the raw cost of the dollar borrowing, SOFR plus the hedge, comes to roughly 7%, right about where a AAA PSU funds at home. That is covered interest parity at work: hedge away the currency and the dollar's lower coupon disappears, because the forward premium tracks the rate gap between the two countries. For the rupee that premium runs a little above the rate gap, never below it, which is why our own twelve-month forward sits just over 3%, not the 2.3% a textbook differential would imply.

Add the bank's arranging margin and the market-hedged route lands near 8.0%, a touch above domestic. Which is precisely why, at market terms, no PSU bothers; it simply issues a rupee bond. So the edge was never "dollars are cheaper." The hedge eats that. The edge is that RBI is offering the hedge at 1.5% when the market charges about 3.0%, a subsidy of roughly 150 basis points. That subsidy, and only that subsidy, is what carries the ECB route below the domestic line. It is a cleaner, more defensible claim than a vague "offshore is cheaper," and it is the number a treasurer will test first.

What PSUs pay at home today

The comparison only holds if the domestic number is honest, so we took it from the live secondary market rather than a model. Across the traded tape, 117 AAA central-PSU bonds with three-to-five years left change hands around 7.25% on taxable paper. These are the exact names the facility is built for.

The eligible set is wider than the marquee central names. Many state-government entities qualify too, and they fund materially higher, in the AA band. We count 32 such bonds at three-to-five years, with a median near 8.82%. For these issuers the headline gap to the ECB route looks far larger, though the arranging margin on a weaker credit would be fatter too, so read the AA saving as directional rather than a clean two-point pickup.

Why now: the rupee under pressure

The timing is not incidental. The rupee has slid in a near-straight line over the past year, from about 85.6 to the dollar to roughly 95.45, a depreciation of around 12%. A weakening currency is exactly when a central bank wants to attract dollars without spending reserves, and exactly when a subsidised hedge is the cleanest lever to do it.

The two curves

The subsidy lives in the gap between two yield curves. India's sovereign curve sits well above the dollar funding line at every tenor; that distance is the rate differential the currency hedge normally prices in. The RBI swap simply caps that hedge at 1.5% for the highlighted three-to-five-year band, regardless of where the market would set it.

It also explains who shows up to lend. With the Japanese ten-year still near 2.5%, the big Japanese banks carry some of the cheapest dollar balance sheets in the world, which is why they, alongside the global houses, are the natural arrangers of the dollar leg.

Who is at the table

Three sets of players make the trade work. International banks bring the dollars. Indian Authorised Dealer banks book the swap with RBI and arrange the deal. And the PSUs draw the borrowing and bank the saving.

The dollars

International banks arrange and lend the ECB — Japanese megabanks especially, with cheap USD balance sheets.

MUFG

SMBC

Mizuho

JPMorgan

Citi

HSBC

Standard Chartered

BNP Paribas

DBS

The conduit

Indian AD Category-I banks book the swap with RBI, add an arranging margin, and can raise their own overseas borrowings.

State Bank of India

ICICI Bank

Axis Bank

HDFC Bank

Kotak Mahindra

Bank of Baroda

The beneficiaries

PSU borrowers draw the ECB and fund roughly 75 bps cheaper than a domestic AAA bond — the only names the facility allows.

Power Finance Corp

REC

NABARD

NHAI

IRFC

NTPC

Power Grid

HUDCO

IREDA

EXIM Bank

Indicative participants, not advised or confirmed deals.

See the live tape

This piece is a snapshot. For the moving picture, Capera tracks the instruments and curves behind every number here:

Note on the data. Bond yields are median traded levels for the named cohort, read from Capera's live secondary-market tape on 9 June 2026, filtered to the swap-eligible PSU universe at three-to-five-year maturities. Dollar funding, forward premia and the rupee are point-in-time market levels; the swap rate and eligibility are from RBI circular RBI/2026-27/100. This is an informational read, not investment advice, and Capera is not a registered investment adviser. See Legal & disclosures for regulatory positions.

Written by

Vansh Sheth

Research Analyst, Capera

Writes sharp essays about banking systems, capital flows, and markets infrastructure.