RBI Introduces Forex Support Measures to Ease Overseas Funding Costs for Banks

The Reserve Bank of India (RBI) has announced a series of foreign exchange-related measures aimed at facilitating overseas fund mobilisation by banks and improving liquidity conditions within the financial system.

Industry assessments indicate that these initiatives are likely to reduce the cost of overseas borrowings raised by banks through the External Commercial Borrowing (ECB) route. The reduction in funding costs is estimated to be in the range of 2% to 2.5%, making foreign currency borrowings more cost-effective for lenders.

One of the key measures is the concessional USD/INR swap facility available for eligible ECBs and Overseas Foreign Currency Borrowings (OFCBs). The facility is intended to lower the hedging costs associated with foreign currency borrowings, thereby reducing the overall expense of raising funds from international markets.

The easing of hedging costs is expected to improve the attractiveness of overseas funding avenues for banks and facilitate access to foreign capital at competitive rates. The measures may also contribute to increased foreign currency inflows, strengthen liquidity conditions, and provide greater flexibility in funding operations.

Market participants believe that the RBI’s initiatives could assist banks in diversifying funding sources while managing currency and interest rate risks more efficiently. The measures are also expected to support liquidity management and contribute to overall financial system stability.

The latest forex support initiatives form part of the RBI’s broader efforts to facilitate external funding access, strengthen foreign exchange market conditions, and encourage sustainable capital inflows into the banking sector.