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What are Masala Bonds?

Topics Covered: Indian Economy and issues relating to planning, mobilization of resources, growth, development and employment.

What are Masala Bonds?

What to study?

For Prelims and Mains: Features and significance of Masala Bonds.

Context: Asian Development Bank (ADB) has listed its 10-year masala bonds worth Rs 850 crore on the global debt listing platform of India INX. The proceeds would be used to support local currency lending and investment in India.

Background:

India INX is the country’s first international exchange, located at International Financial Services Centre, GIFT City in Gujarat. ADB’s masala bonds are listed on both Luxembourg exchange and India INX.

What are Masala Bonds?

They are bonds issued outside India by an Indian entity or corporate. These bonds are issued in Indian currency than local currency.  Indian corporates usually issue Masala Bonds to raise funds from foreign investors. As it is pegged into Indian currency, if the rupee rates fall, investors bear the risk. The first Masala bond was issued in 2014 by IFC for the infrastructure projects in India.

How does Masala Bonds help bond issuer?
As Masala bonds are issued directly in Indian rupees, the investor needs to bear the exchange rate risks. Rupee rate falls will not affect the issuer of Masala Bonds. In simpler words, as Masala Bonds are rupee-denominated bonds, the risk goes directly to the investor.

Who is eligible to invest in Masala bonds?
Investors from outside of India who would like to invest in Indian assets can invest in Masala bonds. Indian entities like HDFC, NTPC and Indiabulls Housing have raised funds via Masala Bonds.

Masala_Bond

Sources: the Hindu.