Masala Bond

It is a  Rupee-denominated bond issued overseas by Indian entities to raise funds. Since the bonds are denominated in rupees, the currency risk is borne by investors rather than Indian issuers.

Introduction: The first Masala Bond was issued by the International Finance Corporation (IFC) in 2014. The RBI formally permitted rupee-denominated overseas bonds in 2015.

Key Objectives

• Enable Indian entities to access global capital in rupees.
• Reduce foreign-exchange risk for Indian borrowers.
• Diversify funding sources and deepen the offshore rupee market.
• Support the internationalisation of the Indian rupee.

Key Features

• Rupee-Denominated: Bonds are issued overseas but denominated in INR.
• Currency Risk: Exchange-rate risk is mainly borne by the investor.
• Eligible Issuers: Indian corporates, NBFCs, REITs and InvITs, subject to applicable regulations.
• Global Listing: Can be listed on recognised overseas exchanges.
• Maturity: The minimum maturity period has been reduced from the initial five years to three years under applicable rules.
• Use of Funds: Proceeds are subject to regulatory restrictions on specified activities.

Benefits

• Reduces currency risk for Indian borrowers.
• Expands access to international investors.
• Diversifies corporate financing.
• Supports infrastructure and long-term investment.
• Contributes to the internationalisation of the rupee.

FAQs

Q1. What are Masala Bonds?
Rupee-denominated bonds issued overseas by Indian entities.

Q2. Who bears the currency risk?
The investor, as the bond is denominated in Indian rupees.

Q3. When were Masala Bonds introduced?
The first was issued by the IFC in 2014, while the RBI formally permitted them in 2015.

Q4. Who can issue Masala Bonds?
Eligible Indian corporates, NBFCs, REITs and InvITs, subject to applicable regulations.

Q5. What is the main advantage of Masala Bonds?
They allow Indian entities to access international capital without taking direct currency risk.

Q6. How do Masala Bonds support the Indian rupee?
They deepen offshore rupee markets and contribute to the internationalisation of the rupee.