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GK of the day: What are Masala Bonds?

GK of the day: What are Masala Bonds?

Masala Bonds are rupee-denominated bonds i.e the funds would be raised from overseas market in Indian rupees. According to RBI, any corporate, body corporate and Indian bank is eligible to issue Rupee denominated bonds overseas.

While companies can raise funds through these bonds, there are limitations for the use of such proceeds.

RBI mandates that the money raised through such bonds cannot be used for real estate activities other than for development of integrated township or affordable housing projects.

It also can’t be used for investing in capital markets, purchase of land and on-lending to other entities for such activities as stated above.

Maturity of Masala Bonds

According to RBI, the minimum maturity period for Masala Bonds raised up to Rupee equivalent of USD 50 million in a financial year should be 3 years and for bonds raised above USD 50 million equivalents in INR per financial year should be 5 years.

The conversion for such bonds will happen at the market rate on the date of settlement of transactions undertaken for issue and servicing of the bonds, including its redemption.

As the investment is denominated in Indian currency so any fluctuation in the currency will be wear by the investors.

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