PNB Seeks $1 Billion Foreign Loan Backed by RBI Hedging
Punjab National Bank is syndicating a $1 billion loan to tap the Reserve Bank of India's hedging subsidy, signaling a broader push by Indian lenders to lock in cheap foreign currency funding.
Punjab National Bank is raising $1 billion through a syndicated loan to fund foreign currency deposits, capitalizing on a central bank initiative that effectively eliminates hedging costs. The financing is being offered at a rate of up to 125 basis points above the secured overnight funding rate. The exact pricing will depend on the loan size each participating bank commits to hold on its own books.
The transaction is already active in the syndication market, with multiple lenders assessing their appetite for the paper. "This loan is already under syndication, and several banks are evaluating it to take a piece," a person aware of the details said. "More banks are likely to join since the amount is so big."
The borrowing is specifically structured to attract leveraged investors into the dedicated forex-deposit program sanctioned by the central bank. The underlying mechanism relies on the Reserve Bank of India's special swap facility for fresh three- to five-year FCNR (B) deposits. Under this window, the RBI absorbs the entire currency hedging cost for banks. This allows lenders to raise foreign funds without the usual premium associated with shielding against exchange rate volatility.
"This loan is part of the overall demand for foreign currency loans from Indian banks to take advantage of the special foreign currency window," the same person said.
PNB is not alone in pursuing this funding route. Earlier this week, State Bank of India and HDFC Bank were in the market to raise a combined $1.7 billion through loans from foreign banks. The clustering of these transactions indicates a coordinated strategy among India's major lenders to lock in dollar funding while the central bank subsidy remains active.
PNB and Mashreq did not respond to emails seeking comment. CTBC could not be reached for a comment. For fixed-income investors and market participants, the wave of dollar fundraising underscores a significant shift in Indian bank funding. By offloading hedging costs to the central bank, these institutions can access cheaper foreign capital, which may ultimately influence domestic lending rates and broader liquidity conditions in the banking sector.
