Masala Bonds

Mar, 13, 2018

NBFCs to be active issuers of Masala bonds: Fitch

Note4students

Mains Paper 3: Economy | Investment model

From UPSC perspective, the following things are important:

Prelims level: NBFIs, Masala bonds

Mains level: Growth of bond market in India


News

Need for diversified funding

  1. The non-bank financial institutions (NBFIs) in India will be active issuers of Masala bonds over the medium-term
  2. This reflects their rising need for diversified funding to support growth
  3. Rating agency Fitch made this forecast

Growth in NBFI credit and masala bonds market

  1. NBFI credit grew by 13% in 2017, around 4x faster than bank credit
  2. NBFIs had already shifted towards bond market funding in recent years as yields had fallen while bank lending rates had remained stubbornly high
  3. Estimates suggested that there were $7 billion in Masala bonds outstanding at end-September 2017
  4. This indicated reasonable activity since the first issuance in 2016

Back2Basics

Masala bonds

  1. Masala bonds are bonds issued outside India but denominated in Indian Rupees, rather than the local currency
  2. The term was used by the International Finance Corporation (IFC) to evoke the culture and cuisine of India
  3. Unlike dollar bonds, where the borrower takes the currency risk, masala bond makes the investors bear the risk
  4. The first Masala bond was issued by the World Bank-backed IFC in November 2014
Sep, 23, 2017

RBI removes masala bonds from corporate bond limit

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Note4students

Mains Paper 3: Economy | Mobilization of resources

From UPSC perspective, the following things are important:

Prelims level: Masala Bonds

Mains level:Not much


News

  1. RBI removes masala bonds from corporate bond limit 
  2. The move will release additional space for foreign portfolio investors (FPI), who can now invest up to another Rs 44,000 crore in the debt securities of companies.
  3. With effect from October 3, masala bonds will no longer form a part of the limit for FPI investments in corporate bonds
  4. The masala bonds were reckoned under both corporate debt and external commercial borrowings for FPI investment.
  5. It will now be counted only under the ECB category, where a borrower just needs to seek the RBI’s approval to sell those securities. 

What is the advantage?

  • Bringing masala bonds under the ECB framework will ensure better monitoring framework, especially onsources and the purpose of investment 

Back2basics

Masala Bonds

 

 

Oct, 21, 2016

HDFC raises Rs 500 crore via masala bonds

  1. Event: Mortgage lender HDFC has said that it has raised Rs 500 crore through rupee-denominated bonds from overseas investors
  2. In July this year, in the first ever masala bond issue, HDFC had raised Rs 3,000 crore through rupee—denominated bonds
  3. What: The rupee-denominated bonds or masala bonds are instruments through which Indian entities can raise funds by accessing overseas capital markets, while the bond investors hold the currency risk
Mar, 03, 2016

IFC launches masala bonds to mobilise Rs 30 crore

  1. News: International Finance Corporation (IFC), a member of the World Bank group has launched its first Uridashi Masala bonds
  2. Context: Mobilising Rs 30 crore directly from Japanese household investors to promote private sector development in India
  3. Investment: 3-year bond builds on IFC’s Masala bond programme, which has raised the equivalent of $1.7 billion from international investors for investment in India
  4. Used for: Proceeds from IFC’s Uridashi Masala bonds will be used to support private sector investment in India
  5. Uridashi bonds are sold to Japanese household investors
Feb, 22, 2016

UK wants Indian cos to raise capital through ‘masala’ bonds

  1. Context: A delegation from UK, trying to convince Indian companies to raise capital in the UK through so-called ‘masala’ bonds
  2. What are Masala bonds? Rupee-denominated bonds issued by Indian companies to offshore buyers
  3. Relevance: Masala bond market has great potential to be an interesting asset class for investors and the UK government is keen to support Indian companies to this end
  4. UK’s Support: To Indian companies that may be looking at renewable energy projects, to raise money in the UK through green bonds
  5. What are the Green bonds? Bonds issued to raise money for a ‘green’ project like climate change, renewable energy, sustainable water or clean transport
  6. Way ahead in UK? UK wants to encourage 2-way investments with India that “stands out as a bright spot” in the current global economy
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