Foreign banks chase rupee deals as offshore debt sales slow

Indian firms, especially highly-rated conglomerates and multinational subsidiaries, are opting to raise money at home, where liquidity is deepening and pricing is more predictable

Foreign lenders in India facing tepid demand for offshore debt are setting their sights on a new target: the country’s growing rupee bond market.

High US benchmark yields, geopolitical tensions and tariff-related swings have eroded the appeal of foreign-currency debt for Indian corporates this year, causing the issuance to drop even as Indian companies boost spending and borrowing at home.

That dynamic has boxed out foreign banks that tend to underwrite dollar bonds but historically had little heft in the domestic market, which is dominated by local players. To compete, lenders including Standard Chartered Plc and Barclays Plc, the top foreign underwriter of rupee bonds, are looking to widen their onshore offerings to appeal to Indian corporates shifting their borrowing to rupees.

“The share of rupee debt is rising for Indian borrowers since they find it cost effective,” said Prathamesh Sahasrabudhe, a managing director and head of capital markets for India & South Asia at Standard Chartered. “We find opportunities to back rupee-denominated debt, which could continue to increase unless global uncertainties and rates recede.”

Indian firms, especially highly-rated conglomerates and multinational subsidiaries, are opting to raise money at home, where liquidity is deepening and pricing is more predictable. That’s put rupee bond sales on track to hit an all-time high in 2025, with issuance of 12.6 trillion rupees ($140 billion) year to date.

Meanwhile dollar bond issuance stands at just over $9 billion, 32% less than the same period a year earlier, when Indian companies sold $13.3 billion, according to data compiled by Bloomberg.

As a result, Barclays’ India arm is mapping out a strategy to expand into the domestic credit market, said Vijay Santhanam, the bank’s head of international corporate banking for India.

The bank infused about $700 million since 2021 to bolster its local balance sheet and is broadening its products to include more complex structured solutions for domestic borrowers. “If you want to be meaningful to Indian entities, we also need to be relevant in their home market,” Santhanam said. “If the numbers support growth, capital will be made available.”

So far the push is showing results. Barclays jumped three spots to eleventh this year on the rupee bond league table, and this week underwrote the bonds of telecom major Bharti Telecom Ltd. worth 85 billion rupees. Year to date, the bank has arranged deals worth 226 billion rupees, about 37% more than the year prior.

Still, foreign banks will have to compete with entrenched domestic lenders that benefit from bigger deposit pools and extensive branch networks. State-owned banks also have implicit sovereign backing and a government mandate to support priority sectors.

Those benefits have allowed domestic banks like Axis Bank Ltd. and HDFC Bank, the top two rupee bond underwriters, to price debt more competitively. Currently, no foreign bank is even in the top ten for rupee bond financing, according to Bloomberg league tables.

“Foreign banks have realized that they need to increase rupee financing in India to create a bigger asset pool,” said Ajay Manglunia, executive director at Capri Global. “That would also mean they would take local lenders, who have traditionally dominated this space, head on.”