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India makes a push for cheaper foreign loans in yen, rupee
India is pressing multilateral development banks (MDBs) to lend more in Japanese yen and Indian rupees in an attempt to reduce borrowing costs and manage exchange rate risks more effectively, two officials aware of the matter said.
New Delhi has steadily expanded loans and official development assistance (ODA) in yen to gain from ultra-low interest rates and the rupee's appreciation against the Japanese currency. Many of these loans finance infrastructure and development projects.
'Yen rates remain close to zero, and with the rupee having appreciated significantly against the yen since early 2023, yen borrowings, including through Samurai bonds, have emerged as a compelling option," one of the two officials cited above said, requesting anonymity. Samurai bonds are yen-denominated bonds issued in Japan by foreign entities to raise money.
The development assumes significance since MDBs such as the World Bank, Asian Development Bank (ADB) and the International Monetary Fund (IMF) play a central role in global finance, especially in developing economies. These institutions lend in dollar as well as other reserve currencies.
ADB, which mainly lends in dollars, has also issued rupee bonds. The Asian Infrastructure Investment Bank (AIIB) too lends in yen, euro and rupees. The yen is part of IMF's special drawing rights (SDR) basket of currencies, and can be used depending on borrower preference and availability.
India is pushing for loans in yen, the second official confirmed, adding "These loans and ODAs are not free, and we pay interest on them. A lot has changed now with India's rise at the global high table, and we are in a better position to negotiate our terms and conditions with the MDBs," said the second person.
'Also, given our past record, India also happens to be very attractive for these lending institutions as well, given our repayment history and the credit profile. We will follow the strategy which is in our best interest," the person added.
An ADB spokesperson said the bank has received a handful of requests from India for yen-denominated loans in the last two years, with three such agreements signed in 2023 and 2024. These include the Delhi-Meerut RRTS Tranche 3 (2023), the Nagpur Metro Urban Mobility Project (2024) and the Amaravati Capital City Development Programme (2024).
The ADB spokesperson pointed out that despite the rising interest in yen loans, 20 out of 22 sovereign loans signed by ADB in India in 2024 were in dollars. 'ADB's advice to borrowers is to choose the most financially advantageous termsbased on needs and risk exposure of the project and the borrower's overall external debt portfolio," the spokesperson added.
Queries emailed to the spokespersons of India's finance ministry, World Bank, AIIB, IMF and Exim Bank remained unanswered.
'India is expected to expand its yen exposure further as part of a calibrated shift to longer-tenure, lower-cost financing to mitigate exchange rate risks. It will also explore greater use of the domestic currency. However, the dollar will remain dominant in the medium term, given its role as the principal global reserve currency," the official cited earlier said.
According to the Reserve Bank of India (RBI) data, yen-denominated liabilities rose to 6.2% of India's total external debt at the end of March 2025, up from 5.8% a year earlier. In absolute terms, this equals $45.6 billion out of the total $736.3 billion in external debt at the end of FY25. India's total external debt rose 10% in FY25. The US dollar still dominated India's external borrowings, accounting for 54.2%, followed by the Indian rupee (31.1%), yen (6.2%), SDR (4.6%), and the euro (3.2%).
While the appeal of yen financing is clear, economists caution that since India lacks a deep forex market for the yen, most conversions still happen through cross-rates with the dollar or euro rather than direct market-determined rates, adding layers of complexity.
'Rupee-denominated loans are preferable from a stability standpoint. As for yen borrowings, unless a more efficient and transparent yen market develops, the advantages remain limited. In many cases, dollar- or SDR-denominated loans might still be more practical," said Bhanumurthy N.R., director of the Madras School of Economics.
India's yen borrowing strategy is gaining traction across both bilateral and multilateral channels.
In FY24 alone, India signed yen loan agreements with the Japan International Cooperation Agency (JICA) worth over ¥276 billion (around ₹15,600 crore), funding metro rail, logistics, and renewable energy projects.
In FY25, JICA followed up with six ODA agreements worth ¥191.7 billion ( ₹11,181 crore) to support urban transport, water infrastructure, environmental protection, and livelihood programmes, including Delhi Metro Phase IV, Chennai's desalination plant, biodiversity projects in Punjab, and an aquaculture initiative in Assam.
A separate ¥84.3 billion loan for Mumbai Metro Line 3 took the year's total to ¥276 billion ( ₹15,655 crore).
'India's push to secure more yen- and rupee-denominated loans from MDBs reflects a prudent effort to lower external borrowing costs while reducing exposure to the volatility of major foreign currencies like the US dollar," said Venkatakrishnan Srinivasan, managing partner at Rockfort Fincap Llp, a financial advisory firm.
'From a bond market and risk perspective, rupee-denominated MDB funding is a strong fit. It eliminates currency mismatch, enhances debt predictability, and aligns well with India's broader strategy of deepening its local currency bond ecosystem. Yen-denominated loans, though historically low-cost, now come with added complexity due to heightened forex volatility and an uncertain interest rate trajectory in Japan," he added.
