Mumbai, Aug. 13 -- The Reserve Bank of India's (RBI's) concessional hedging window was expected to make overseas borrowing an attractive option for public sector companies. Seventy days on, the advantage is already wearing thin. Higher US Treasury yields and a rush of Indian banks into the dollar market have narrowed the cost gap with domestic bonds to just 8-10 basis points (bps), leaving public sector non-banking financial companies (NBFCs) weighing whether to borrow overseas now, wait for better rates, or simply stay home, two PSUs and two merchant bankers said.

The squeeze is coming from both sides. US Treasury yields have climbed, while increased issuance by Indian banks raising dollars to fund foreign-currency non-resident (FCNR) d...