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Informist, Thursday, Jul. 2, 2026

--S&P: PSU cos likely to up external borrowing due to RBI FX swap facility 

--S&P: See fincl PSU cos' loan growth at 15% per annum for next 2 years 

--S&P: RBI's new NBFC norms subject large PSU NBFCs to stricter regulation 

--S&P: Macroecon headwinds to drive up PSU NBFCs' credit costs next 2 yrs 

MUMBAI – The Reserve Bank of India's concessional dollar-rupee swap facility is likely to increase external commercial borrowings of public sector undertakings and benefit their funding costs, S&P Global Ratings said in a report Thursday. "We expect loan growth for financial GREs (government regulated entities) to stay at about 15% per year over the next two years, aided by mandates to drive the development of strategic sectors," Deepali Seth-Chhabria, credit analyst at the ratings firm, said in a note.

In June, RBI Governor Sanjay Malhotra had announced a concessional dollar-rupee swap for overseas borrowing to boost forex inflows and support the domestic currency. The RBI introduced a forex swap facility for external commercial borrowings with maturities of three years or more and overseas foreign currency borrowings raised by authorised dealer category-I banks with a minimum maturity of three years.

According to an Informist Poll, the RBI's concessional dollar-rupee swap facility for public sector undertakings' external commercial borrowings and overseas foreign currency borrowings is expected to push overall overseas borrowing to $65 billion in 2026-27 (Apr-Mar). 

The report said regulations for government-owned non-bank financial companies are gradually converging with the private sector and the new classification guidelines allow large government-owned NBFCs to be considered a part of the upper layer category. "This shift subjects them to stricter regulation and supervision, particularly regarding concentration limits. While current exposures may be grandfathered, the new rules will effectively curb incremental concentration risk and enhance credit discipline."

Macroeconomic headwinds, loan seasoning, dwindling recoveries, and tapering provision buffers are likely to drive a slight increase in credit costs over the next two years, Geeta Chugh, an analyst at S&P Global Ratings, said. "Asset quality is a mixed bag. Some nonbank financial institutions are exposed to weak borrowers, though sovereign exposure and guarantees from the government partially mitigate the risk," Chugh said. Credit costs for the sector have improved and are better than peers, the report said. 

The earnings of development financial institutions such as Small Industries Development Bank of India, National Bank for Agriculture and Rural Development, and National Housing Bank are moderate. This is the same case with Indian Railway Finance Corp. and Export-Import Bank of India.

"These entities tend to have weak margins despite their lower cost of funding," the report said. "Margins are constrained by the entities' policy roles. Some operate on cost-plus basis while others have a cap on lending margins for the refinance business."

On the other hand, Power Finance Corp., Housing and Urban Development Corp. Ltd., and Indian Renewable Energy Development Agency Ltd. make higher margins as they lend to relatively weaker borrowers.  End

Reported by J. Navya Sruthi

Edited by Avishek Dutta

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