Corporate dollar borrowing boom: In 2025, Indian companies borrowed a record amount from foreign banks. The shift towards overseas syndicated loans, rather than offshore bonds or domestic credit, says as much about global liquidity as it does about corporate risk appetite. The vulnerability lies elsewhere. These loans are largely denominated in dollars, and the stress point will surface if the rupee weakens sharply.
Indian firms raised over $32 billion through syndicated loans, which sit between bilateral bank lending and capital-market borrowing. A consortium of international banks lends under common terms, typically within the Reserve Bank of India’s external commercial borrowing (ECB) framework.
READ | India’s MSMEs need systems, not more schemes
Why firms prefer the syndicated route
The appeal is straightforward. Unlike dollar bonds, which demand large ticket sizes, syndicated loans allow more granular borrowing. Mid-sized firms raising $100–300 million for acquisitions, expansion, or refinancing find them easier to structure. Tranches can be drawn as required. Prepayment is simpler and does not carry the same market signalling as bond redemptions.
Pricing has also mattered. Bank-led syndications for established Indian borrowers have often come at tighter spreads than volatile bond markets would allow. Global banks seeking exposure to Indian credits have compressed margins, particularly for large corporates and financial institutions. Bond markets, by contrast, remain hostage to geopolitical shocks and risk-off episodes that can shut issuance windows abruptly. Predictability, even if not always the cheapest option, lowers execution risk.
Corporate dollar borrowing: Floating rates and perceived hedges
Expectations of a softer US interest-rate cycle have further tilted the balance. Many syndicated loans are priced over SOFR, making them attractive if US rates decline. Exporters, global services firms, and companies with overseas subsidiaries also see a natural hedge in dollar revenues. In private equity-driven transactions, speed and flexibility often trump interest-rate certainty, reinforcing the preference for loans over bonds.
READ | RBI’s push for banking transparency and the right to information
None of this removes the central risk. For many borrowers, revenues remain rupee-based while liabilities are in dollars. A sharp depreciation raises debt-servicing costs even if US interest rates fall. Leverage metrics can deteriorate quickly as rupee liabilities balloon without a matching rise in cash flows.
India has seen this before. Episodes of global tightening, from the taper tantrum onwards, have exposed the dangers of unhedged foreign borrowing. Currency losses can wipe out operating profits faster than balance sheets adjust.
ECB rules and the temptation to under-hedge
Regulators have absorbed these lessons. ECB norms emphasise matching foreign borrowing with foreign earnings or hedging. But hedging carries costs. When the rupee appears stable, the temptation to under-hedge in order to save on premiums is persistent. The same feature that makes these loans attractive—floating interest rates—also embeds risk. If US inflation remains sticky or global liquidity tightens, borrowers who avoided fixed-rate bonds may end up paying more for longer. Relationship banking offers no immunity. Banks face their own funding pressures and regulatory constraints. Pricing can turn less accommodating when conditions change.
READ | Why Indian banks are struggling to raise deposits
Another risk that receives less attention is refinancing. Syndicated loans are typically shorter-tenor instruments than offshore bonds, often maturing in three to five years. That is manageable in benign conditions but becomes problematic if global banks retrench just as loans fall due. Refinancing pressure can emerge even before currency stress becomes acute, especially if bond markets are also shut. In such moments, otherwise sound firms can be forced into costly rollovers or balance-sheet compression, amplifying stress across borrowers at the same time.
What is less discussed is the impact of rising corporate external debt on India’s external vulnerability metrics. While foreign-exchange reserves provide a sovereign buffer, large corporate dollar liabilities can generate sudden demand for foreign currency during stress periods. That pressure does not remain confined to balance sheets; it spills into the financial system and the rupee.
The test of syndicated borrowing will come not during benign liquidity cycles but in the next global downturn. If firms have matched currency exposures and avoided leverage-driven speculation, this phase will look like financial deepening. If not, the verdict will arrive through the exchange rate.