The emerging funding route allows companies to raise money in the domestic bond or loan market and then enter a currency swap with a bank, exchanging rupee cash flows for dollar cash flows. The company effectively creates a dollar liability without borrowing directly from an overseas lender.

Rupee dollar swap pricing has risen 90-110 basis points across two, three and five year tenors, improving the economics of dollar funding through domestic borrowing. Companies with dollar revenues or overseas operations can use cross currency swaps to convert rupee borrowing into dollar liabilities without borrowing directly overseas. An indicative AAA rated corporate borrowing at 8-8.25 per cent domestically could translate into a 4.75-5 per cent effective dollar cost after the swap, versus 6-6.20 per cent for direct dollar borrowing. RBI's liquidity operations, including dollar rupee swaps, spot dollar sales, bond sales and VRRR auctions, have pushed up forward premiums and altered the relative economics of rupee and dollar funding.

Indian companies with dollar revenues or overseas operations are being offered a potentially cheaper route to dollar funding as banks pitch structures that combine domestic rupee borrowing with cross currency swaps , taking advantage of higher dollar rupee forward premiums created by the Reserve Bank of India's foreign exchange operations. The emerging funding route allows companies to raise money in the domestic bond or loan market and then enter a currency swap with a bank, exchanging rupee cash flows for dollar cash flows. The company effectively creates a dollar liability without borrowing directly from an overseas lender.

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