Global Banks Can Now Offer Total Return Swaps on Corporate Bonds in GIFT City

Global banks like HSBC and Standard Chartered have been allowed to offer Total Return Swaps on corporate bonds, in GIFT City.

Total Return Swaps Enable Indirect Exposure to Indian Debt

Total return swaps are financial derivatives in which one party benefits from the total return of an asset, such as its interest or capital appreciation, without owning the asset. In return for this benefit, the party pays the other a fixed or floating fee. By allowing total return swaps on corporate debt, India is giving international investors more flexibility and cheaper access to India’s credit markets, as there will be no requirement to open domestic accounts or adhere to regulations surrounding direct ownership of corporate debt.

This development is taking place after India was added to a series of global bond indices, which has already resulted in a steady flow of foreign capital to both sovereign and corporate debt instruments.

Surge in Corporate Bond Issuance Supports Demand

The timing of this regulatory change coincides with a spike in corporate bond issuance in India. Local currency bond issuance has recently seen record levels, demonstrating increased demand for private credit and long-term capital. One of the most attractive stories is a $3.4 billion private credit transaction by a prominent Indian infrastructure conglomerate, which is the largest private credit deal ever in India.

The increased availability of TRS is expected to contribute to the growing demand for Indian corporate bonds, as global asset managers and hedge funds seek more attractive yields in emerging markets.

Rising Global Interest Through GIFT City

The Gujarat International Finance Tec-City (GIFT City) has become a gateway for international financial institutions seeking access to the Indian market. At the same time, industry stakeholders report an increase in interest in TRS structures through this hub due to its regulatory nuances and ease of process.

Currently, approval for TRS trading is limited to rupee-denominated debt. However, an industry demand is building to extend these instruments to include dollar-denominated bonds issued by companies in GIFT City. We expect that a consultation paper on this issue will be published soon, which could signal the regulator’s ongoing openness to new capital market solutions.

Major Banks Set to Participate

At least one significant international bank has confirmed its intention to offer TRS offerings on corporate bonds under the new framework. The developments serve as an endorsement of the attractiveness of India’s liberalized derivatives regime, while also highlighting the growing relevance of GIFT City as a global financial hub.

These changes signal India’s intention to become a more attractive and functional option for international debt investors, further integrating into global capital markets and diversifying corporate funding sources.

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