RBI forex swap scheme could pull $50bn into banks in 2026

Foreign investors rotate back into bank stocks

Overseas funds bought about $1.5 billion of banking and financial-services shares in the two weeks through June 30, reversing earlier outflows, according to National Securities Depository Ltd. Data compiled by Bloomberg showed the sector ended the month with net inflows of $157 million. The change in flows comes as Indian lenders move to tap overseas funding markets and prepare for a fresh policy-supported channel to attract foreign currency deposits. Market participants have tracked this reversal closely because bank stocks have been a key driver of index earnings, and funding availability directly influences credit expansion.

The renewed foreign interest is also notable because it contrasts with a broader foreign pullback from India’s equities, even as state-run banks attracted incremental buying. Shareholding data as of Dec. 31 showed foreign investors increased their stake in top government-owned lenders including State Bank of India (SBI), Bank of Baroda, Canara Bank, and Punjab National Bank to the highest in at least a year. The cited reason in the material was that lenders offered better valuations and stronger growth prospects.

What RBI changed and why markets are watching

A central development is the Reserve Bank of India’s move to support foreign currency inflows into the banking system. RBI announced it will bear the entire hedging cost on fresh FCNR(B) deposits with maturities of 3 to 5 years. The policy intent, as described, is to strengthen India’s foreign exchange reserves and attract overseas funds via the banking channel.

The decision was described as capable of unlocking an estimated $10 billion (₹3.8 lakh crore) of foreign currency inflows into Indian banks. Separately, the measures were expected to draw in more than $10 billion, easing funding pressures that had constrained loan growth and improving the outlook for lenders. The material also flagged that banks were expected to gain from foreign exchange deposits sourced from non-resident Indians, which would be available with concessions owing to the forex swap program.

Subsidised hedging window: SBI and Bank of Baroda line up

In parallel, SBI and Bank of Baroda were reported to be set to become the first users of RBI’s subsidised hedging window for overseas borrowings, with plans to raise about $1 billion through five-year dollar bonds, according to three sources cited in the text. The window effectively lowers the cost of managing currency risk for eligible overseas borrowings, which can be a material cost component for banks raising funds in dollars.

For lenders, the policy support matters because foreign funding and hedging costs influence both competitiveness and balance-sheet strategy. Lower hedging costs can make offshore borrowing more viable, especially when domestic liquidity conditions or pricing make it harder to fund incremental loan growth at attractive spreads.

Key operational conditions and dates

The shared details also listed operational constraints linked to the swap-linked scheme:

• A bank can use it only once a week
• Deposits have a 1-year lock-in
• Once a swap is done with RBI, it cannot be cancelled

Important dates were also specified:

• The window is open immediately
• It stays open till October 16, 2026
• It applies to deposits made between the circular date and September 30, 2026

These conditions shape how quickly banks can scale up deposit mobilisation and how treasury teams manage duration, liquidity, and hedging execution.

SBI’s offshore fund-raising plans add to the signal

SBI has been active in lining up foreign currency resources and longer-tenor liabilities. The bank approved plans to raise up to $1 billion (nearly ₹17,000 crore) through foreign currency bonds in FY27. Separately, SBI said its board approved a plan to raise up to $1 billion in long-term funds during FY26, either in one or multiple tranches via public offerings or private placements of unsecured notes.

In an exchange filing, SBI stated that its executive committee, in a meeting held on May 20, 2025, approved examining the status and deciding on long-term fund raising in single or multiple tranches of up to $1 billion under Reg-S/144A, through a public offer and or private placement of senior unsecured notes in US dollars or any other major foreign currency during FY 2025-26. Another update also said SBI’s executive committee would meet on May 20 to consider raising up to $1 billion via offshore bonds during FY 2025-26.

Debt market activity: domestic and offshore channels

Apart from overseas issuance, SBI was also set to tap the domestic bond market. The material said SBI would come to market with a Tier 2 issuance of up to ₹7,500 crore for a 10-year tenor, while NABARD would raise up to ₹7,000 crore through a 39-month issue. Together, the two offerings would raise as much as ₹14,500 crore via the EBP platform in a single day.

SBI also raised $1 billion in a syndicated loan described as the largest dollar-denominated syndicated loan this year from India, providing support to the foreign-currency debt market.

International business funding and credit pipeline

On deployment, SBI expected to use $1.5 billion in funding it had tied up over the next four months of the ongoing financial year (2024-25) in international operations. It had firmed up $100 million through bonds (notes) and another $1 billion through syndicated loans. The bank also had a pipeline of proposals worth $1 to $1 billion for disbursement in international business.

The text also cited SBI’s customer credit in international operations: it almost touched $16 billion in June 2024 and increased to $10 billion as of September. In addition, it mentioned SBI tied up $1 billion through a five-year syndicated loan arranged by HSBC.

Key numbers at a glance

Market impact and why the policy matters

The immediate market relevance sits in two places: equity flows and funding costs. Foreign portfolio investors returning to bank stocks in late June, alongside rising ownership in major state-run lenders, suggests investors are paying attention to policy actions that may improve funding conditions. The RBI’s decision to bear hedging costs for eligible FCNR(B) deposits directly reduces the effective cost of mobilising foreign currency deposits, which can improve net funding economics for banks.

At the same time, the reported plans by SBI and Bank of Baroda to use the subsidised hedging window for overseas borrowings highlight an effort to diversify funding sources. The text linked these measures to easing funding pressures that had constrained loan growth. The detailed operating conditions, such as weekly usage limits and a one-year lock-in for deposits, imply the scheme is designed to balance inflow attraction with operational control.

Conclusion

June’s turnaround in foreign flows into banking and financial-services stocks coincided with a set of RBI measures aimed at pulling foreign currency into the banking system. With the window open immediately and set to remain available till October 16, 2026, banks now have a defined timeframe to mobilise eligible deposits and execute swaps, while large lenders such as SBI continue to line up offshore and domestic fund-raising plans under the disclosed frameworks.