RBI allows multilateral FIs to invest in masala bonds
- The Reserve Bank of India (RBI) has permitted multilateral and regional financial institutions (FIs) to invest in ‘masala bonds’, rupee denominated bonds issued by Indian entities.
- This decision will allow multilateral agencies like Asian Development Bank (ADB) and BRICS led New Development Bank (NDB) to invest in these bonds
- It also provides more choices of investors to Indian entities issuing rupee-denominated bonds abroad.
What are Masala bonds
- The Masala bonds refer to rupee-denominated bonds through which Indian entities can raise money from foreign markets in rupee, and not in foreign currency.
- Basically, they are debt instruments that are typically used by corporates to raise money from investors.
- The issuance of rupee denominated bonds, Indian entity is protected against the risk of currency fluctuation, typically associated with borrowing in foreign currency
- Masala bonds also help in internationalization of the rupee and in expansion of the Indian bond markets.
- These bonds are usually traded on the London Stock Exchange (LSE) and not in India.
- The first Masala bond was issued by the International Finance Corporation (IFC), the investment arm of the World Bank dubbed as Uridashi Masala Bonds in November 2014.
- The Housing Development Finance Corporation (HDFC) was the first Indian company to issue rupee-denominated bonds “masala bonds” on London Stock Exchange (LSE) in July 2016.
- International Financial Corporation was first time issued green masala bonds in August 2015 to raise private sector investments that address climate change in India.
- Canada’s British Columbia province was the first foreign government to issue of masala bonds.