RBI Considers Foreign Bonds Sale By Public-Sector Banks To Shore Up Rupee

The Reserve Bank of India (RBI) is weighing an unconventional and bold way to support the rupee. The regulator is considering allowing state-run banks to raise funds through foreign-currency bonds, as pressure on India’s fiscal math mounts amid surging crude oil prices and persistent capital outflows.

RBI officials have discussed a proposal under which public sector lenders could issue foreign-currency-denominated bonds, likely with maturities of around five years, to attract dollar inflows into the country, according to a report by Bloomberg. The move is still at a preliminary stage, and no final decision has been taken, the report said.

The discussions come at a time when the rupee has weakened nearly 6 per cent against the US dollar this year, making it Asia’s worst-performing currency in 2026. The Indian currency recently slipped to fresh record lows near 95 per dollar as rising oil prices, foreign fund outflows and a stronger greenback intensified pressure on the foreign exchange market.

The RBI’s latest move reflects growing concerns over India’s widening balance of payments deficit. The RBI at its latest monetary policy meeting also highlighted the possible impact of a prolonged war in West Asia and elevated energy prices on domestic inflation.

Nomura estimates India could face a balance of payments gap of nearly $68 billion in FY27 as elevated crude oil prices inflate the country’s import bill and overseas investors continue pulling money out of domestic markets.

The urgency has increased because crude oil prices have surged sharply amid geopolitical tensions in West Asia, especially around Iran and the Strait of Hormuz. Brent crude has hovered above $100 a barrel and briefly rose over $120 in recent weeks, worsening inflation concerns and putting additional strain on India’s import bill.

India imports nearly 90 per cent of its crude oil requirements. When oil prices rise, Indian refiners need more dollars to pay for imports, increasing demand for the US currency and weakening the rupee. A weaker rupee, in turn, makes imports even more expensive, creating a vicious cycle for the economy.

What are Foreign Bonds?

Foreign bonds are debt instruments issued in an overseas currency to raise funds from international investors. In the RBI’s proposal, Indian state-run banks could issue bonds denominated in dollars or other foreign currencies and raise capital from global markets.

For example, if an Indian bank issues a five-year dollar bond worth $1 billion, foreign investors would purchase the bond and transfer dollars into India. These inflows would boost the availability of foreign exchange in the domestic market and help support the rupee.

India had used similar strategies during the 2013 “taper tantrum” crisis, when the rupee came under severe pressure following the US Federal Reserve’s signals of policy tightening. At that time, the RBI had encouraged banks to mobilise foreign currency non-resident (FCNR) deposits by offering special swap windows and incentives. Those measures helped attract billions of dollars and stabilise the currency.

This time, however, the challenge may be tougher because global interest rates are significantly higher. Experts said Indian authorities may need to provide incentives or subsidies to make such foreign bond issuances attractive to investors.

To allow lenders to offer more attractive yields to investors, the RBI is also considering offering forex swaps to lenders who participate in order to hedge their currency risk, according to the report. Through this framework, lenders would be able to buy foreign currency, such as dollars, from the RBI at a future date at a price determined upfront.

Apart from foreign bonds, the RBI is also reportedly considering additional steps such as encouraging NRI dollar deposits and easing tax rules for foreign investment in Indian government securities. These moves could help shore up India’s dollar reserves. As of April 24, the RBI had foreign exchange reserves worth $698 billion. This has fallen from an all-time high of $728 billion seen earlier in the year.  

Market experts say the success of these measures will depend largely on crude oil prices and global risk sentiment. If geopolitical tensions continue to keep oil elevated, India’s import bill could rise sharply, keeping sustained pressure on the rupee despite RBI intervention.