PSUs seek RBI extension of concessional forex hedge window till March 2027

New Delhi: Public Sector Undertakings (PSUs) have urged the Reserve Bank of India (RBI) to extend its concessional US dollar-rupee swap window for External Commercial Borrowings (ECBs) by three months, till March 2027, as most of their annual capital expenditure is undertaken in the January-March quarter, sources said.

The RBI had launched the special forex swap window in June to allow PSUs raising overseas loans to hedge their foreign currency exposure at a lower cost. The facility is currently available till December 31, 2026.

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According to sources, extending the window would enable PSUs to raise more funds from overseas markets at a lower hedging cost, reducing their borrowing expenses and supporting higher capital expenditure.

The demand comes as the RBI's broader measures to attract foreign currency inflows are gathering pace. According to an SBI Research report, Foreign Currency Non-Resident (Bank) [FCNR(B)] deposits are expected to reach USD 65-70 billion, while the combined inflows from FCNR(B) deposits, Overseas Foreign Currency Borrowings (OFCBs) and ECBs could touch USD 80-85 billion.

The report said India's foreign currency assets have risen by USD 7.6 billion since June 8. RBI data also showed FCNR(B) deposits worth USD 17.4 billion had been mobilised till July 17, although banks are converting these inflows through the RBI's swap window in phases.

Public sector banks, particularly the larger lenders, have led the mobilisation drive by leveraging their overseas customer base and relationships with non-resident Indians (NRIs) and other overseas clients, the report noted.

It added that a large portion of FCNR(B) deposits maturing in August and September 2026 is expected to be renewed under the revised scheme, helped by higher interest rates. As a result, FCNR(B) inflows are estimated to have already crossed USD 26 billion in just 45 days, exceeding the amount mobilised during the entire three-month FCNR(B) drive in 2013.

To attract more foreign currency deposits, the RBI last month removed the interest rate ceiling on fresh FCNR(B) deposits with maturities of three to five years. This relaxation will remain in force until September 30, while banks can avail themselves of the special swap window for ECBs and OFCBs until December 31, 2026.

The RBI introduced these measures after FCNR(B) deposit inflows weakened sharply, with net inflows falling to just USD 946 million in FY26 from USD 7.1 billion in FY25.

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What does this mean?

The RBI is encouraging dollars to flow into India without directly borrowing itself.

• PSUs often borrow in US dollars because overseas loans can be cheaper than domestic loans.

• However, borrowing in dollars carries exchange rate risk. If the rupee weakens, repaying the loan becomes more expensive.

• The RBI's dollar-rupee swap window allows PSUs and banks to hedge this currency risk at a concessional cost, making overseas borrowing more attractive.

• Since many PSUs spend the bulk of their capital expenditure in the January-March quarter, they want the facility to continue beyond December so they can complete their borrowing plans.

• Higher overseas borrowing could provide more funds for infrastructure and expansion projects while also bringing additional foreign currency into India, supporting the country's external finances.

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