Indian banks have urged the Reserve Bank of India to reduce foreign exchange hedging expenses to support overseas borrowing and boost dollar inflows, according to Reuters and banking sources familiar with the discussions. The talks took place in Mumbai during meetings between the central bank and treasury heads of major lenders ahead of the RBI’s June 5 monetary policy review.
Bankers proposed a system under which companies would hedge dollar-denominated borrowings through lenders while banks would gain access to cheaper swap facilities from the RBI, Reuters reported on Monday. The proposal aims to lower the cost of overseas borrowing at a time when the Indian rupee has weakened sharply against the US dollar.
One source familiar with the discussions told Reuters that the RBI was prepared to absorb up to 150 basis points of hedging costs. “The RBI is comfortable at bearing 150 basis points of the hedging cost, which should make the dollar borrowing cheaper than local fundraise,” the source said. The person added that several banks requested even larger discounts to encourage greater participation.
Two banking sources told Reuters the proposed mechanism could help Indian lenders and companies raise as much as $50 billion from overseas markets if implemented broadly. Reuters reported that it remains unclear whether the subsidy would apply to all borrowers or only selected sectors.
The discussions come as India faces pressure from rising crude oil prices and persistent foreign equity outflows. Economists cited by Reuters warned that these trends could push India’s balance of payments into a significant deficit during the current financial year.
The Indian rupee has been among Asia’s weakest-performing currencies in 2026. Reuters reported that the currency has declined by as much as 4.7% against the dollar since the outbreak of conflict involving Iran disrupted energy markets and increased demand for dollars.
The RBI has already intervened heavily in currency markets in recent weeks to slow the rupee’s decline. Reuters reported on May 22 that the central bank sold between $2 billion and $3 billion through state-run banks to defend the currency after it touched a record low of 96.96 per dollar.
According to Reuters, the RBI also announced a $5 billion dollar-rupee swap auction set for May 26 to handle liquidity pressures caused by those interventions. Economists told Reuters the move was intended to ease stress in the banking system and cut forward hedging costs.
Reserve Bank of India Governor Sanjay Malhotra said in an interview with Mint newspaper on Monday that India needed to strengthen both its current account and capital account positions. Reuters cited Malhotra as saying the country must improve the quality of inflows and external balances as global volatility increases.
Indian Commerce and Industry Minister Piyush Goyal said last week that New Delhi was closely monitoring the rupee’s depreciation and considering multiple policy responses. Reuters reported that officials were examining additional measures to attract dollar inflows and stabilise financial markets.
Reuters also reported earlier this month that the RBI was studying ways to encourage deposits from non-resident Indians, similar to a programme launched during the 2013 currency crisis. That earlier initiative attracted about $26 billion in foreign currency deposits after banks were allowed to swap those funds with the RBI at concessional rates.
The Economic Times reported that India’s external commercial borrowings declined to $43 billion in the 2025-26 financial year from $61 billion the previous year. Banking officials told the newspaper that high hedging costs had made overseas borrowing less attractive despite strong global liquidity conditions.
The proposed subsidy framework could affect India’s broader financial relationships with international investors and lenders. Lower hedging costs may encourage Indian companies to return to offshore debt markets at a time when the government is seeking to strengthen foreign exchange reserves and maintain confidence in the rupee. According to Reuters, policymakers are attempting to avoid more aggressive steps such as interest rate increases while inflation remains a concern.
Background:
India has faced sustained pressure on its currency since energy prices rose sharply following tensions involving Iran and disruptions in oil markets. The RBI has repeatedly intervened in foreign exchange markets during May to slow the rupee’s decline. Reuters reported that state-run banks sold dollars on behalf of the central bank during several trading sessions. At the same time, foreign investors have continued pulling money from Indian equity markets, adding pressure on external balances. Indian policymakers used similar measures during the 2013 rupee crisis, including special deposit schemes for overseas Indians and subsidised swap arrangements.
What happens next
The RBI is anticipated to continue talks with banks before its June 5 monetary policy review, according to Reuters. Officials have not announced whether the proposed hedging subsidy will be adopted or how it would be structured. Reuters reported that policymakers are also considering additional measures to attract foreign currency inflows, including non-resident Indian deposit schemes and expanded swap operations. Market participants will closely monitor the rupee’s performance and the outcome of the RBI’s upcoming policy meeting for further signals on intervention measures.
