Financial instruments: India

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What is a masala bond?; Graphic courtesy: The Times of India, May 30, 2016

Banks can raise funds overseas via masala bonds: RBI

The Indian Express, November 4, 2016

By: ENS Economic Bureau

The Reserve Bank of India reiterated that the quantum of masala bonds raised by companies would need to be within the overall limit set for foreign investment in corporate bonds — Rs 2,44,323 crore (as on November 4, 2016). Of this quota, an amount of Rs 1,66,120 crore has been used up till November 2, 2016 according to data available on National Securities Depository Limited (NSDL). RBI issued the final norms for banks with regard to masala bonds.

There have been nine issues of masala bonds by Indian entities, of which Housing Development Finance Corporation has raised funds in four tranches. The other issuers are Indiabulls Housing Finance, NTPC, Adani Transmission, ECL Finance and Fullerton India, having raised a combined total of close to Rs 9,800 crore.

The rate at which these companies have raised money ranges between 7.48 per cent and 9.10 per cent across tenures of three to five years. So far no bank has issued masala bonds as they have been awaiting the final guidelines.

As on November 4, 2016, State Bank of India offers 7 per cent on fixed deposits with a maturity of two-years to less than three years and a rate of 6.5 per cent on fixed deposits of a maturity of three years to less than five years.

The RBI said banks will now be allowed to raise both Tier-I and -II capital via issues of rupee-denominated overseas bonds. It also permitted lenders to issue long-term masala bonds for the financing infra projects and affordable housing.

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