RBI Weighs Foreign Bond Sales by State Lenders as Rupee Weakens

The Reserve Bank of India is weighing a plan that would allow state-owned lenders to issue foreign-currency bonds in a bid to attract capital inflows and shore up the declining rupee, according to people familiar with the matter. The proposal marks a potential escalation in the central bank's toolkit as it grapples with sustained pressure on the currency, which has weakened sharply against the dollar amid global risk-off sentiment and capital outflows from emerging markets.

Under the framework being considered, India's state-owned banks would sell bonds denominated in foreign currencies—typically dollars or euros—to international investors. The proceeds could then be deployed to support the rupee or channeled into domestic market operations. The approach mirrors strategies used by other emerging market central banks facing similar currency stress, though it carries risks related to debt sustainability and market reception. The plan remains under internal discussion and has not yet been finalized, the people said, cautioning that no concrete timeline has been set.

The potential move signals the depth of concern within India's monetary policy establishment over the rupee's trajectory. Foreign investors have been reducing holdings of Indian assets as the Federal Reserve's tightening cycle makes dollar-denominated instruments more attractive. A successful foreign bond issuance by state lenders could help replenish foreign exchange reserves, which have declined from their peaks, and reduce near-term pressure on the currency. However, the strategy's effectiveness would depend on global market conditions, investor appetite for Indian sovereign or bank-linked debt, and whether such flows prove durable rather than speculative.