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Kingshuk Bandyopadhyay, MSc Economics
Written Dec 2, 2015
What do you mean by masala bonds?
Originally Answered: What is a Masala bond? How the risk of currency is being transferred to an investor
through this? What is the Difference between rupee bond and
Masala bond is an informal name used for Rupee denominated bond that Indian corporate Masala bond?

borrowers can sell to investors in international markets (typically in the major financial Why are masala bonds named so?
centres like London, Singapore, New York etc)
How do I issue masala bond?
The interest rate faced by companies in India is often higher than the rate outside India. So
What are the advantages of rupee dominated Masala
some Indian companies would like to borrow abroad. Until now they had been able to
borrow only in the major currencies (Dollar, Euro etc). This is called External Commercial
Borrowing (External commercial borrowing (India) ) - ECB for short. How masala bonds works and what are its returns?

ECBs have few disadvantage from the perspective of the borrowing company and Reserve What are Synthetic bonds and Masala Bonds ?

Bank of India(RBI). What is a bond?

The debt is in a foreign currency. Interest and principal payments have to be made in
the foreign currency. However most of the company earnings will usually be in Indian What are solar bonds?
Rupee. So in the face of a falling Rupee the company faces a currency risk. This can be
What are junk bonds?
solved by hedging but it increases the cost of borrowing.

Large amount of foreign currency debt raised this way can influence the Rupee rate More Related Questions

itself which is partly managed by RBI. This is because the companies have to sell the
foreign currency and buy Rupee to use the funds in India - causing the Rupee to Question Stats
If large amount of debt in important domestic companies are raised this way, it can
expose the economy to currency risk -reducing RBI's ability to play the role of lender 6,160 Views
of last resort. Last Asked Jun 1

4 Merged Questions

To avoid some of the above RBI has several capital account restrictions around ECB. They
limit how much can be borrowed in foreign currency, at what interest rate, term , who can

borrow, what proportion of debt can be ECB etc. Here is an example RBI circular - Master
RBI also changes these limits and restrictions regularly to reflect changing economic

The above three can mostly be solved if Indian corporations can borrow in Rupee itself. In
that case the borrower will need to pay interest in Rupee. Then the currency risk (Rupee
falling against Dollar) will be shifted to the lender (who would typically hedge their
exposure by buying some currency derivative). This is what the Masala bonds do. They are
RBI's attempt to internationalize the Rupee.

This is similar to Chinese government's attempt to internationalize the Yuan. In their case
Yuan denominated bonds are called Dim Sum bonds (Dim sum bond )
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Sameer Aggarwal Co Founder Advisesure, Cofounder at Online Personal

Finance startup . Easy and Smart
Updated Mar 28
Originally Answered: What are Masala Bonds and how to invest in them?
Masala bonds are the new type of bonds, which are rupee-linked bonds, issued to offshore
investors but the settlement happens in dollar terms. The major benefit of this bond is that
the currency risk is not borne by the http://issuer.An issuer can issue masala bonds
worth a maximum $750 million a year and the bonds must have a minimum maturity of
five years. Ask or Search Quora Ask Question Read Answer Notifications Prasanna

For example, IFC issues Masala bond in the offshore market, the price of a bond will be
denominated in Indian currency and not in the US $ but, at the time of maturity, it will be
paid in the terms of dollar Value.



Price of a bond in Rupee terms


INR/USD rate on the investment date


Amount Invested in USD ($)


Redemption Amount in Rupee terms


INR/USD rate on Redemption date


Redemption amount in USD ($)


Source: Advisesure

The above table helps one to understand how the bond is issued to an offshore investor,
the investor is required to pay in rupee terms i.e. $17.5 (Rs.1050/Rs.70) at the time of
purchase whereas, on maturity he receives the returns in the dollar terms i.e. $20 (Rs.60*
$20=Rs.1200) for his investments.

History behind this bonds

IFC issued a 10-year, 10 billion Indian rupee bond in November 2014 to increase foreign
investment in India and mobilise international capital markets to support infrastructure
development in the country. Masala bond was the first Indian bond to get listed in London
Stock Exchange. IFC named it Masala bonds to give a local flavour by calling to mind
Indian culture and cuisine.

List of the companies who issued and planning to issue Masala Bonds in
Offshore Markets

Name of the Company

Issue Size

Year of Issue
Listed in
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International Finance Corporation (IFC)

Rs.1000 Crore


London Stock Exchange

International Finance Corporation (IFC)

Rs.170 Crore


London Stock Exchange

International Finance Corporation (IFC)

Rs.200 Crore


London Stock Exchange

Housing Development Finance Corporation

$750 Million

Not Declared

London Stock Exchange

Yes Bank

$500 Million


London Stock Exchange

NTPC Limited

$500-$750 Million

Not Declared

London Stock Exchange

Power Finance Corporation (PFC)

$500-$750 Million

Not Declared

London Stock Exchange

Indian Railway Finance Corporation (IRFC)

$300-500 Million

Not Declared

London Stock Exchange

Source: AdviseSure, Newsreports

Benefits of Masala Bonds

1. It helps the Indian companies to diversify their bond portfolio. For example,earlier
companies used to issue only corporate bonds. Masala bonds is an addition to their
bond portfolio.

2. It helps the Indian companies to cut down cost. If the company issues any bond in
India, it carries an interest rate of 7.5%-9.00% whereas, Masala Bonds outside India is
issued below 7.00% interest rate.
3. It helps the Indian companies to tap a large number of investors as this bond are
issued in theAsk or Search
offshore Quora
market. Ask Question Read Answer Notifications Prasanna

4. Masala bonds will help in building up foreign investors confidence in Indian economy
and currency which will strengthen the foreign investments in the country.

5. An offshore investor earns better returns by investing in Masala bonds rather than
byinvesting in his home country.For example, if he had invested in the bond offered
in his home country the US, the bond yield is hardly 2% whereas if he invests in rupee
denominated masala Bond the yield ranges from 5.00% to 7.00%.

6. An investor will benefit from his investment in masala bondsif the rupee appreciates
at the time of maturity. For example,
ParticularsValuePrice of a bond in Rupee terms1050INR/USD rate on investment
date70Amount Invested in USD ($)17.5Redemption Amount in Rupee
terms1800INR/USD rate on Redemption date60Redemption amount in USD ($)
30Source: AdviseSureThe investor pays $17.5 and receives $30i.e. the investor is
earning a profit of $12.5 on his investment.


As it is rupee denominated bond the risk will be borne by the investor. The issuer does not
carry any currency risk by issuing this bond in the foreign market.

For example



Price of a bond in Rupee terms


INR/USD rate on investment date


Amount Invested in USD ($)


Redemption Amount in Rupee terms


INR/USD rate on Redemption date


Redemption amount in USD ($)


Source: Advisesure

The investor pays $17.5 and receives $15.85. The loss of $1.65 on his investment due to
fluctuation in exchange rate has to be borne by the investor.


Masala bond will help the Indian corporates to reduce its interest cost burden on the debt
amount on its balance sheet. The more of foreign funds can be used for infrastructural
development in the country. Overall, the development of a Masala bond market would be
positive for Indian firms, opening up potentially significant new sources of funding over
External Commercial Borrowings (ECB).

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Rajneesh Singh, An engineer and crazy about economics

Written Dec 2, 2015
Originally Answered: What is a Masala bond? How the risk of currency is being transferred to an investor
through this?
Masala bonds have to be explained in the context of Indian corporates raising money from
overseas investors. or Search
Before masalaQuora Ask Question
bonds, corporates have had to rely on avenues such as Read Answer Notifications Prasanna
external commercial borrowings or ECBs. The challenge with the likes of ECBs is the entity
raising money is faced with a currency risk - they have to be raised and repaid in dollar
terms. A year is a long time in forex markets - currencies fluctuate sharply. So, imagine the
risk a bond issuing entity, especially one with largely rupee earnings, if issue and
repayment are years apart.

Enter masala bonds! They are rupee-denominated bonds issued to overseas

buyers. This is how it is different from other instruments. With a masala bond, a
corporate could issue Rs. 10 billion worth of bonds with the promise of paying back Rs. 11
billion in one year. But as the Indian rupee has limited convertibility, the investors will
lend the dollar equivalent of the Rs. 10 billion. After one year, the Indian corporate needs
to pay back the dollar equivalent of Rs. 11 billion. The currency risk is with the
505 Views View Upvotes Answer requested by Aswin Alora

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Rohit Yadav, PG in Finance, Financial Analyst in a leading bank

Written Feb 22

India's government has pushed the development of masala bonds which are rupee-
denominated and sold only to offshore buyers as its own equivalent of China's dim
sum market, and a step in longer-term moves to internationalise its currency.
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Ramamurthy Guruvayurappan, Two thousand and five hundred followers, Most

viewed writer in 90 plus subjects
Written Dec 15, 2015
Originally Answered: What are Masala Bonds and how to invest in them?
As an Indian you are not eligible to invest in Masala Bonds. Wherea country or its
corporates issue overseas bonds in their own currency, instead of international currency, it
is similar to Masala Bonds. Such bonds issued in indian Currency has been nicknamed as
MASALA bonds to easily identify that this has been issued by India.

Only if the country's currency is stable, overseas investors will invest in such bonds. I am
not confident, given the fragile nature of its currency, MASALA bonds will be a success.
480 Views View Upvotes Answer requested by Maulik Balar

Upvote 1 Downvote Comment

Maneesh Kumar, Know some definitions, terms and jargon through dictionaries
and google too.
Written Feb 22
What are masala bonds?

Bonds are instruments of debt - usually used by corporates to raise money from
investors. Masala bond is a term used to refer to a financial instrument through which
Indian entities can raise money from overseas markets in the rupee, not foreign

In other words, they are rupee-denominated bonds issued to overseas buyers.

This is how it is different from other instruments. Before Masala bonds, corporates
have had to dependent on avenues such as External Commercial Borrowings

How did the tag masala come about?

Indian spices have been popular all over the world since ancient times. It named
masala bonds to reflect the Indian angle to it.

What has been the regulator's stance on this?

RBI has issued guidelines allowing Indian companies, non-banking finance companies
and infrastructure investment trusts and real investment trusts to issue rupee-
denominated bond overseas.
Important Facts about Masala Bonds
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Masala bonds are a step to help internationalise the Indian rupee and also
strengthen, the Indian financial system.

By issuing bonds in rupees, an Indian entity is shielded against the risk of currency
fluctuation, typically associated with borrowing in foreign currency. Besides
helping diversify funding sources, the cost of borrowing could also turn out to be
lower than domestic markets.

The first masala bonds were issued by the International Finance Corporation
(IFC), an arm of the World Bank, in the year 2013. Similar offerings from other
countries have also been after the food or culture of that country like "dim sum"
label for Chinese offshore issues or "Samurai" bonds for Japanese offshore issues.

Note: IFC established in 1956 and owned by 184 member countries, is the largest
global development institution focused exclusively on the private sector companies and
financial institutions in developing countries.

As masala bonds are denominated in rupees, foreign investors will be taking the
currency risk. So the key for the success of these bonds will be a stable exchange

Masala bonds are the first rupee bonds listed on the London Stock

According to RBI's norms, an Indian entity is allowed to raise a maximum of $750

million per year through masala bonds with a minimum maturity of five years.

Why should investors look at masala bonds?

The Finance Ministry has cut the withholding tax (a tax deducted at source on residents
outside the country) on interest income of such bonds to 5 per cent from 20 per cent,
making it attractive for investors.

source: An overview of Masala Bond

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