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Rupee Denominated Bonds or Masala Bonds

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Rupee Denominated Bonds or Masala Bonds

Recently, the Reserve Bank of India (RBI) has recommended that the government should approach New Development Bank for selling rupee denominated bonds in foreign markets.

The move will help the government access foreign savings amid the government’s record lending programme.

Also, being AAA rated this bank will also help in raising funds at an affordable rate.

Masala bond is one such term which is used as a financial instrument. Through this, Indian entities can raise money from foreign markets in rupee denomination.

This is an attempt to protect bond issuers from currency risk and instead transfer the risk to investors who buy these bonds.

In the year 2015, RBI allowed Indian entities to issue rupee denominated bonds abroad.

Masala Bond

  • Masala bonds are bonds issued outside India, but denominated in Indian currency instead of the local currency.
  • Unlike dollar bonds (where the borrower has to take on currency risk), spice bonds involve risk-taking investors.
  • The first Masala bond was issued in November 2014 by the International Finance Corporation of the World Bank.

Source – The Hindu

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