RBI introduces USD-INR swap facility for PSU external commercial borrowings and bank overseas borrowings
AD Category-I bank treasury teams can swap eligible PSU ECB and bank OFCB inflows into USD with RBI at a fixed 1.5% premium, but must file a hedging declaration and act before the 15 January 2027 window closes
Change
On 8 June 2026, the Reserve Bank of India (RBI) introduced a US Dollar-Rupee forex swap facility for PSU External Commercial Borrowings (average maturity three years and above) and AD-bank Overseas Foreign Currency Borrowings (minimum three-year maturity); it takes effect from the circular date and is open until 15 January 2027 for inflows received up to 31 December 2026.
Why it matters
The facility is accessed by PSU ECB borrowers through their AD Category-I banks and by AD banks for eligible OFCBs, with the RBI swap in US Dollars only and tenor coterminous with the borrowing's repayment schedule, capped at five years. Banks sell US Dollars to RBI in multiples of USD one million at the FBIL Reference Rate and return Rupee funds plus a fixed 1.5% per annum premium (compounded semi-annually) on the reverse leg. Weekly availment is capped at the preceding week(s)' eligible inflows. ECBs with embedded options and refinancing/repayment ECBs are excluded; a signed hedging declaration is required and no ISDA agreement is needed. The window is time-bound: eligible drawdowns and flows must be received by 31 December 2026, and the facility closes on 15 January 2027.
Implications
- — AD Category-I bank treasury and forex-operations teams must build the swap workflow — signed hedging declarations per request, USD-equivalent conversion for non-USD inflows, the once-weekly cap tied to preceding-week eligible inflows, and the fixed 1.5% semi-annually-compounded premium on the reverse leg — to hedge eligible PSU ECB and OFCB flows before the window closes, or forgo the facility.
- — PSU ECB borrowers and their AD banks must confirm eligibility before relying on the facility — only ECBs of average maturity three years and above drawn after the circular date (or undrawn portions of existing ECBs) qualify, while ECBs with embedded options and those raised to refinance or repay existing ECBs are excluded.
- — Banks must ensure eligible OFCBs conform to Paragraph 5, Part C of the Master Direction on Risk Management and Inter-Bank Dealings, and that ECBs remain governed by the FEM (Borrowing and Lending) (First Amendment) Regulations, 2026, or the borrowing falls outside the swap's terms.
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