India has broadened the use of a key financial instrument known as total return swaps (TRS) to include corporate bonds. This move, reported by Bloomberg citing people familiar with the matter, marks a notable expansion from their prior use in sovereign debt and signals rising global interest in India’s $639 billion credit market.
The approvals were granted by the financial regulator overseeing Gujarat International Finance Tec-City (GIFT City), India’s flagship international financial services hub. According to sources quoted by Bloomberg, international banking giants including HSBC Holdings Plc and Standard Chartered Plc have received the green light to offer TRS linked to corporate debt.
New Access to a Surging Market
This regulatory nod comes as India’s corporate credit market experiences unprecedented momentum. Domestic firms are issuing local-currency bonds at record levels, while private credit deals are surging. Notably, construction giant Shapoorji Pallonji Group recently secured $3.4 billion in what is reportedly India’s largest-ever private credit transaction.
By allowing TRS on corporate bonds, regulators have opened a new channel for global investors to tap into this booming sector without the need to open domestic accounts. Under a total return swap, the foreign investor gains exposure to the underlying asset’s performance — such as coupon payments and capital gains — in return for paying a fee to the bank that holds the asset.
“This will give investors globally a more flexible and efficient way to participate in India’s credit growth story,” said Sachin Shah, Managing Director at Standard Chartered India, in comments reported by Bloomberg. “We have seen good volume growth through our GIFT City branch.”
A Post-Index Inclusion Momentum
The popularity of TRS has increased following the announcement of India’s inclusion in key global bond indices, which is expected to bring tens of billions in passive inflows. The country has already seen around $22 billion of foreign investment flow into its sovereign debt market, bolstered by instruments like TRS.
Until now, TRS usage was largely limited to government securities. By extending it to corporate bonds, India is aiming to position GIFT City as a competitive global finance center, rivaling peers in Singapore, Dubai, and London.
Looking Ahead: Dollar-Denominated Debt Next?
While the current approvals apply only to onshore rupee-denominated corporate debt, discussions are underway to potentially extend the product to dollar bonds issued from GIFT City. “We will soon be floating a consultation paper in this regard,” said K Rajaraman, Chairman of the International Financial Services Centres Authority (IFSCA), in an earlier interview with Bloomberg.
An HSBC spokesperson confirmed that the bank has received approval to begin offering TRS on corporate bonds out of GIFT City. The IFSCA, however, did not respond to Bloomberg’s request for comment.
The expansion underscores India’s evolving approach to financial liberalization — cautious but increasingly progressive — as it courts foreign capital and strengthens its credentials as a hub for international finance. For investors seeking exposure to India’s corporate debt boom without navigating traditional regulatory hurdles, the TRS route may soon become the preferred entry point.
