Indian lenders delay dollar bond sales as hedging costs climb

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Canara Bank, Punjab National Bank and Bank of India have shelved planned issuances, while Karur Vysya Bank awaits more favourable pricing

By Reuters

Updated - October 27, 2026 at 03:48 PM.

Indian lenders are delaying planned dollar bond issuances as rising US Treasury yields and hedging costs increase overseas borrowing expenses. | Photo Credit: iStockphoto

At least four public sector-run and private lenders are deferring their plans to tap the US dollar debt market as a recent spike in Treasury yields and hedging costs has made this proposition expensive, bank officials and merchant bankers said.

Canara Bank, PNB and Bank of India put plans on hold

Canara Bank, Punjab National Bank (PNB) and Bank of India had plans to raise as much as $2.5 billion through the sale of dollar debt under the central bank’s subsidised hedging facility. They had also initiated talks but ultimately decided not to go ahead with the issuances, the bankers said.

They spoke on the condition of anonymity as they are not authorised to speak to the media.

Rising Treasury yields make dollar funding expensive

The 10-year US yield has climbed 25 bps to around 5% in the last two months, while the rupee has declined 0.8% in the same period. This, along with a jump in hedging costs, has made dollar fundraising expensive compared to rupee-denominated funds, bankers said.

Currently, the all-in dollar debt cost for a state-run lender would be around 70 to 100 basis points over a one-year rupee funding, they said.

Canara Bank MD & CEO Brajesh Kumar Singh told Reuters that the bank had decided not to proceed with the planned dollar bond sale as rates had risen quite sharply.

Wider credit spreads add to borrowing costs

Heavier supply from Indian lenders has contributed to wider secondary spreads and higher new-issue premiums. The recent risk-off move across Asian credit markets has added further pressure, making the cost of new dollar issuance relatively high at this juncture, Lim Ze Hao, associate director, APAC financials at CreditSights, said.

“We would still expect some of the lenders currently in the pipeline to come to market once dollar funding conditions improve, particularly given the incentive to make use of the RBI facility before it expires,” Lim said.

RBI hedging facility supports overseas fundraising

The Reserve Bank of India has allowed banks and state-run companies to raise funds overseas and access a subsidised hedging facility between June and December, lowering the cost of managing currency risk.

Indian lenders have already raised $13 billion through dollar bonds under this scheme, with five state-run banks raising an aggregate of $3.5 billion through private placements and public issues.

Karur Vysya Bank awaits favourable pricing

Smaller private lender Karur Vysya Bank also considered a dollar debt sale but is waiting for favourable pricing.

“Maybe in the next one month or so, we will try to conclude some deal if the pricing and money is favourable,” MD and CEO Ramesh Babu said at a post-earnings conference call earlier this month.

Published on October 27, 2026

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