Foreign Borrowing is Back: What It Means for NBFC Funding and Treasury Strategy
Recent offshore bond issuances by HDFC Bank, Power Finance Corporation (PFC), and Axis Bank are sending an important signal to India’s financial sector: foreign borrowing is becoming strategically viable again.
For NBFCs, this development is particularly significant. Access to offshore markets can broaden funding options, diversify the liability mix, and potentially improve funding economics. But it also introduces another layer of complexity across currency exposure, hedging, refinancing, liquidity, and asset-liability management.
The opportunity, therefore, is not simply access to cheaper or alternative capital. It is the ability to manage a more diversified funding structure without introducing disproportionate balance-sheet risk.
Recent Market Signals: Offshore Funding is Opening Up
Three recent transactions indicate a shift in funding strategy across Indian financial institutions.
HDFC Bank raised $750 million through 5-year offshore bonds, marking one of the largest such issuances by an Indian lender since 2023. Strong global demand reportedly tightened spreads from initial guidance of approximately 120 bps to around 90 bps over US Treasuries, implying a yield of approximately 5.07%.
Power Finance Corporation (PFC) raised $300 million through a 5-year dollar bond, demonstrating continued global appetite for Indian credit. For the NBFC sector, PFC’s issuance is an important signal: international markets can increasingly become a meaningful component of funding diversification.
Axis Bank raised $800 million across two instruments — $500 million through Tier 1 perpetual bonds and $300 million through 5-year unsecured bonds. The transaction signals that offshore markets are opening not only as a source of funding, but also across capital and liquidity requirements.
The economics are becoming more compelling as well. With the RBI’s subsidized hedging window bringing hedging costs to approximately 1.5%, the effective cost of offshore funding can move closer to 7%, making foreign borrowing increasingly competitive with domestic alternatives.
Market expectations of approximately $15–20 billion of inflows through ECB and offshore bond routes over the next six months could further reinforce this trend, with larger banks and NBFCs potentially exploring international markets.
For NBFC treasury teams, the implication is clear: the funding universe is expanding.
Beyond the Transactions: NBFC Liability Strategy is Becoming More Complex
This is not simply about a few institutions accessing international capital opportunistically. It could represent a broader shift in how Indian financial institutions — including NBFCs — think about their liability strategy.
First, policy is making foreign capital more accessible. The RBI’s approach to hedging economics signals an intent to facilitate capital inflows while managing the impact of currency volatility.
Second, global markets are pricing Indian credit favourably. Tight spreads and strong investor demand indicate confidence in Indian issuers, creating a potentially larger offshore funding opportunity for institutions with the right credit profile.
Third, ALM is becoming multi-market. For NBFCs, funding has traditionally been built around domestic instruments such as bank borrowings, NCDs, commercial paper, securitisation, and other local funding sources. Offshore borrowing adds another dimension to this liability stack.
The result could be an increasingly hybrid funding model combining INR and foreign-currency liabilities across different instruments, maturities, rates, and markets.
That diversification can strengthen funding resilience — but only when treasury can manage the complexity that comes with it.
Why Now? Three Conditions are Converging
The renewed attractiveness of foreign borrowing is being supported by three developments:
Tighter domestic liquidity conditions: Episodic liquidity deficits can make domestic funding more expensive or less predictable, increasing the appeal of alternative funding channels.
A resilient India macro story: India’s macroeconomic outlook continues to support international investor appetite for Indian credit.
Improving hedging economics: Policy-backed hedging economics can reduce the effective FX cost associated with offshore borrowing and make it more competitive against domestic funding.
Together, these conditions mean foreign borrowing can increasingly move from an opportunistic funding option to a strategic component of the liability mix.
For NBFCs, however, access to another source of capital does not automatically translate into better funding.
The economics must work after accounting for hedging, maturity, liquidity, refinancing, and balance-sheet risk.
The NBFC Risk Equation: Cheaper Funding Can Introduce New Risks
For NBFCs, the attractiveness of offshore borrowing needs to be evaluated against several structural risks.
Currency risk: Hedging can soften FX exposure, but it does not remove the underlying complexity. Hedging costs can change, and long-term INR movements can alter funding economics significantly.
Refinancing risk: International markets are sensitive to global interest rates, central bank actions, geopolitical events, and investor sentiment. A funding channel available today may become expensive — or temporarily inaccessible — when refinancing is required.
ALM mismatch risk: This is particularly important for NBFCs. Funding INR-denominated assets through foreign-currency liabilities introduces additional currency and maturity considerations into an already complex asset-liability structure.
Cost-of-funds volatility: The headline coupon on an offshore borrowing is only one component of its true economics. Treasury needs to evaluate the landed cost after hedging and associated costs, and understand how that cost could evolve over the life of the liability.
Liquidity complexity: As the funding stack expands across instruments and markets, treasury teams need greater visibility into upcoming obligations, cash flows, maturity concentrations, and liquidity requirements.
For an NBFC, therefore, the question should not be:
“Can we borrow cheaper offshore?”
It should be:
“Can we sustainably manage offshore funding as part of our overall liability and liquidity strategy?”
What This Means for NBFC Treasury
Foreign borrowing can provide NBFCs with an additional lever to diversify funding and potentially optimise cost of funds. But it also raises the bar for treasury capabilities.
As liability structures become more diverse, treasury teams need to move beyond fragmented monitoring and static views of the balance sheet toward a more integrated approach.
That means building capabilities across multi-currency ALM, dynamic hedging, consolidated borrowing visibility, maturity and cash-flow monitoring, scenario-based liquidity planning, and stress testing.
Treasury also needs the ability to evaluate funding decisions in the context of the entire balance sheet — not instrument by instrument.
A dollar borrowing may appear attractive in isolation. But its real value depends on the hedge, maturity profile, underlying asset book, liquidity position, refinancing assumptions, and overall cost of funds.
This is where treasury shifts from being primarily a funding and operations function to becoming a strategic balance-sheet capability.
Different Institutions, Different Lessons
For large banks, offshore borrowing can support overseas operations, trade finance, natural hedges, and funding diversification. HDFC Bank demonstrates how international markets can be accessed alongside a broader funding strategy.
For NBFCs, the lesson is different.
Do not chase “cheaper dollars” in isolation.
Offshore borrowing makes strategic sense when the economics and associated risks can be understood and managed across the life of the liability. That requires strong treasury and ALM capabilities, particularly where there is no natural hedge against foreign-currency exposure.
PFC’s issuance demonstrates the opportunity for NBFCs to broaden their funding channels. But as more institutions explore offshore markets, the differentiator will increasingly become how effectively those liabilities are managed after they enter the balance sheet.
The Strategic Takeaway
Foreign borrowing is becoming less of a constraint and more of a potential competitive capability for Indian financial institutions.
HDFC Bank demonstrates execution strength and timing advantage.
PFC demonstrates the broadening of funding channels relevant to the NBFC sector.
Axis Bank demonstrates that offshore markets can support both capital and balance-sheet funding requirements.
But for NBFCs, access to global capital is only one half of the equation.
The other half is treasury capability.
As funding structures expand across domestic and international markets, institutions will need to understand their exposures in real time, evaluate the true cost of liabilities, manage currency and interest-rate risks, anticipate liquidity requirements, and continuously assess the impact of funding decisions on ALM.
The competitive advantage will not belong to the NBFC that simply borrows the cheapest.
It will belong to the one that manages its funding and risk the smartest.
Closing Thought
We may be at the beginning of a broader foreign borrowing cycle for Indian financial institutions.
For NBFCs, that creates a meaningful opportunity to diversify funding, access new pools of capital, and strengthen the liability strategy.
But greater funding choice also creates greater treasury complexity.
The NBFCs best positioned to benefit will be those that treat foreign borrowing not as a standalone funding transaction, but as part of an integrated approach to borrowings, liquidity, risk, and ALM.
Because as the funding landscape becomes more sophisticated, treasury must evolve with it.
Author:
Lokesh Kumar,
EVP, Business Head – Treasury,
Intellect Design Arena
