Canara Bank, PNB and Bank of India Defer $2.5 Billion Overseas Bond Sales as US Yields Rise

At least four Indian state-owned and private lenders have decided to defer their offshore US dollar bond issuances as rising benchmark US Treasury yields and elevated foreign-exchange hedging costs have significantly increased overseas borrowing expenses.

State-run lenders Canara Bank, Punjab National Bank (PNB), and Bank of India were collectively evaluating fundraising of up to $2.5 billion through dollar-denominated debt sales under the Reserve Bank of India's (RBI) discounted swap window. However, after preliminary discussions and price assessments, the banks opted to shelve their near-term issuance plans as debt pricing turned economically unviable. Private sector lender Karur Vysya Bank also considered entering the dollar debt market but decided to wait on the sidelines for more favourable pricing conditions.

Spiking Yields and Narrowing Window

The pullback comes in response to turbulent conditions across global fixed-income markets. Benchmark 10-year US Treasury yields rose by approximately 25 basis points over the past two months to reach near 5%, sharply raising the baseline funding rate for international debt. Concurrently, persistent pressure on the Indian rupee has kept currency hedging charges steep, diminishing the cost advantage of tapping overseas liquidity.

The deferral is particularly notable because lenders face an approaching expiration on the RBI’s special swap facility. In June, the central bank permitted banks and public-sector enterprises to tap overseas debt by offering a subsidised hedging facility to soften the impact of foreign-exchange risk and support foreign capital inflows. This concessional facility is scheduled to lapse at the end of December.

Overview of Recent Overseas Borrowings

Prior to the recent spike in borrowing costs, domestic lenders actively utilised the central bank's subsidised window:

• Indian lenders have collectively raised approximately $13 billion in dollar-denominated debt under the RBI's subsidised hedging program.
• Five state-run banks—including State Bank of India (SBI), Bank of Baroda, Union Bank of India, and Bank of Maharashtra—raised a cumulative $3.5 billion via private placements and public bond offerings.
• Large private lenders such as HDFC Bank, ICICI Bank, and Axis Bank tapped the offshore market earlier in the year when benchmark spreads were considerably tighter.

What This Means for Domestic Lenders and Investors

For Indian banks, issuing five-year foreign-currency debt is only attractive if the landed cost—inclusive of the base rate, credit spread, and fully swapped-in currency hedging—remains comparable to or cheaper than domestic certificates of deposit (CDs) and wholesale deposits.

With dollar yields elevated and offshore investors demanding wider credit spreads over US Treasuries, rushing to issue before the December deadline would have compressed net interest margins (NIMs). Bankers note that unless global yields retrace or the central bank considers extending the swap window, lenders will likely rely on domestic debt securities, syndicated loans, or wait for international bond markets to stabilise before resuming offshore debt plans.