Rupee Denominated Bonds

Banking Awareness is one of the most important topic. One of the commonly heard term in day to day newspaper is Masala bonds. You must have read this word while revising the daily current affairs or monthly reviews because a lot of money is raised with the help of these bonds. In this article, we will be covering everything related to this topic. What are masala bonds? What are its advantages? etc. Make sure you read it whole to understand the concept of masala bonds. This topic is usually asked in your examination like: which state raised this much money from rupee denominated bond overseas or Which is the only rupee donominated bond of India etc. 

What are Masala Bonds?

When an Indian entity make borrowings from overseas market then they do then they do that through Masala bond which are  Rupee denominated.  The name masala signifies the different cuisines and their flavour which are famous overseas and hence this made them name the bond masala bond.

Other bonds Like masala bond to carry a local favour

Well, there are many bonds that carry the local flavour of there country like Masala bond and  Dim-sum is a fine example of that which is a popular Chinese dish famous in Hong Kong. Hence Chinese bonds were named after Dim-sum. Similarly, samurai bonds which are Japanese bonds were named  after the warrior community of the country.

Importance Of Masala bond

Masala bonds can be the game changer as the success of Masala bond can play a crucial role for the economy of India. These bonds are Rupee denominated bonds raised from foreign market by Indian borrowers. Masala  bonds are pegged to India Rupee and hence the issuer does not face any sort of exchange risk. The exchange risk is mainly borne by the investor. The bonds are then listed in foreign stock exchanges to ensure liquidity and facilitate transactions in the market.

Differences between Masala bonds and ECBs

ECB as well as Masala bonds are basically borrowings made by Indian entities from foreign market. The difference is that in the case of ECB, Indian entities borrow in foreign currency and settle in foreign currency. In a widely fluctuating market, the exchange risk associated with ECB is high than masala bond and an unfavorable foreign currency movement can expose the Indian entity to huge risks and can result in losses. While in the case of Masala bonds, the cost of borrowing is high compared to ECB, but overall cost is less as the Indian entity does not need to address exchange rate fluctuation, which is mainly borne by the investor.

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Advantages and Disadvantages Associated With Masala bonds?

1. If the Indian bonds perform well in the market then the expectations of foreign investors and competitions will prompt Indian Government and regulators to fasten bond market reforms which will bring more investment into the nation.
2. Enthusiastic investors from overseas will strengthen Indian currency thus implying the benefits of  Masala bonds which can be good for Indian rupee, interest rates and economy as a whole.

3) One of the disadvantage which can be notice here is that  over reliance of Indian entities on overseas market for debt even if denominated in Indian currency, can become negative from the perspective of rating agencies.

Prominent Masala bond issues

Given below are some of the major Masala bond issues:
1. The International Finance Corporation (IFC) was able to raised a Rs. 1,000 Crore bond to fund infrastructure projects in India.
2. Housing Development Finance Corporation (HDFC) in India raised Rs. 1,000 Crore in March 2019 through masala bonds.

3. Kerala Infrastructure Investment Fund Board (KIIFB) was able to raised Rs. 2,500 Cr in March 2019 through Masala bond route and thereby Kerala became the first ever Indian state government to issue Masala bond.
4. Indian Renewable Energy Development Agency (IREDA) raised Rs.1950 Crore Green Masala Bond with 5 year tenure in September 2017.
5. Axis Bank, NTPC, REC are some other major Indian enterprises  that issued Masala Bonds.

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