SynopsisPublic sector units like PFC, REC, and NaBFID are poised to increase their External Commercial Borrowings (ECBs) to leverage the RBI's 1.5% fixed-rate swap. This initiative is expected to attract significant dollar inflows, offering Indian companies cheaper funding options below 7% compared to domestic rates.ET Bureau Apart from acting as a bulwark for the rupee, this is expected to have a positive impact on onshore liquidity and interest rates, giving an impetus to credit growth.Mumbai: Public sector units such as Power Finance Corp (PFC), Rural Electrification Corp (REC) and National Bank for Financing Infrastructure and Development (NaBFID) are likely to frontload their External Commercial Borrowing (ECB) to take benefit from the 1.5% fixed rate swap provided by the central bank, multiple bankers told ET. Japan’s biggest lender expects inflows of up to $75 billion.They said that any ECB below 7% is a good deal in today's market conditions but if hedging costs increase, that rate above 8% will be unviable. The RBI swap, increase in ECB limits, and removal of cost ceilings introduced in February this year will prompt more PSUs to raise ECBs, they said.Mitsubishi UFJ Financial Group, Japan’s largest lender and a prominent name in the ECB market, expects the RBI USD-rupee swap to bring in $50-75 billion of inflows into the country.“Apart from acting as a bulwark for the rupee, this is expected to have a positive impact on onshore liquidity and interest rates, giving an impetus to credit growth,” Gaurav Bhagat, head of financial institutional coverage South Asia, global corporate & investment banking, MUFG, told ET. “Private sector corporates and NBFCs will also benefit from the less-than-expected supply in the onshore corporate bond markets and attendant lower yields to access cheaper capital.”MUFG expects the swap facility to offer PSUs a positive arbitrage of more than 1.25% in funding costs.Under the swap arrangement, a bank lending or arranging a bond for a company can sell dollars to the Reserve Bank of India and simultaneously agree to buy back the dollars at the end of the tenure of the loan at a fixed rate of 1.5% per annum compounded semi-annually.Rupee funds will have to be returned to RBI along with the swap premium to obtain the dollars back at the end of the tenure.For example, currently the dollar loan benchmark Secured Overnight Financing Rate (SOFR) is quoting at 4% for a three-year loan for top rated Indian companies. Adding 1.5% RBI rate and even considering a 1% spread for banks, the cost for a top-rated public sector company comes between 6.5% and 7% for a three-year overseas loan, which is still below the 7.30% to 7.50% quoting for these companies in the domestic market.7% Game-ChangerNaBFID CEO Rajkiran Rai said any rate below 7% is very good in times like these for companies from India."The RBI swap facility has a two-fold advantage,” Rai said. “It helps borrowers like us to access cheaper funds and also provides a route for dollars to flow into the country. With the current global rates, any interest rate below 7% is a very good rate for borrowers like us,” said Rai.His company plans an ECB after the publication of the latest swap concessional guidelines.Bankers said the fact that regular domestic borrowers will look overseas in the medium term could also have a positive effect on domestic liquidity since these funds will be parked with banks here.But some borrowers caution that the huge arbitrage due to the RBI’s special facility may not stay forever.“This is, after all, an international market and the SOFR rates keep moving. Overseas banks will also start charging higher rates if more and more Indian companies come up to borrow,” said a senior public sector official. “If banks demand a higher spread then the advantage of this scheme will slowly erode, so it remains to be seen how much of an advantage we get because there are a lot of details to be chalked out before the first trades are executed.”Read More News on(What's moving Sensex and Nifty Track latest market news, stock tips, Budget 2025, Share Market on Budget 2025 and expert advice, on ETMarkets. Also, ETMarkets.com is now on Telegram. For fastest news alerts on financial markets, investment strategies and stocks alerts, subscribe to our Telegram feeds .) Subscribe to ET Prime and read the Economic Times ePaper Online.and Sensex Today. 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