Amid declining US interest rates, Indian companies increasingly opt for cross-currency swaps to convert portions of their rupee-denominated debt into dollars, aiming to reduce borrowing costs.

Six bankers confirmed this growing trend, according to a Reuters report, as companies seek to take advantage of favorable international financial conditions.

This shift is in response to the US Federal Reserve’s decision earlier this week to cut interest rates by a larger-than-expected 50 basis points.

The central bank has signaled further reductions, projecting a cumulative 200 basis point (bps) cut over the next 15 months. The rate cut is intended to ease financial conditions in the United States. Still, it also creates opportunities for companies in India to benefit from lower borrowing costs through cross-currency swaps.

Two large conglomerates, a renewable energy company, and a local unit of a global investment firm are among the Indian firms that have recently employed this financial strategy.

According to Reuters, these firms converted their rupee liabilities into dollar-denominated debt. A banker at a foreign financial institution revealed this to Reuters. The banker requested anonymity, citing the inability to speak to the media without authorization.

Cross-currency swaps are financial derivatives that allow companies to convert loan principal, interest repayments, or both from one currency to another. This helps businesses manage their interest rate exposure and currency risk, particularly when borrowing costs differ significantly between markets.

With US interest rates expected to continue falling, Indian firms see an opportunity to swap rupee-denominated debt for cheaper, floating-rate dollar liabilities.

“Those expecting lower US rates in the future may consider converting INR liabilities to floating-rate USD liabilities through currency swaps, or principal-only swaps, as a cost-reduction measure,” said Ashhish Vaidya, managing director and treasurer of global financial markets at DBS Bank India.