Masala Bonds are rupee-denominated bonds issued by Indian firms outside of India. They are debt products that aid in the raising of funds in local currency from international investors. These bonds can be issued by both the government and private businesses. These bonds are available to investors from outside India who want to invest in Indian assets. These bonds, which are members of the Financial Action Task Force, are available to any resident of that nation. The securities market regulator of the investors who subscribe should be a member of the International Organization of Securities Commissions. These bonds can also be purchased by Multilateral and Regional Financial Institutions, of which India is a member.
The bonds raised to the rupee equivalent of $50 million in a financial year have a three-year maturity period, according to the RBI. Bonds raised over the rupee equivalent of $50 million in a financial year have a five-year maturity period. These bonds are converted at market rate on the date of settlement of transactions for the issue and service of the bonds’ interest.
Are states allowed to issue masala bonds?
Masala bonds can only be issued in a country and subscribed to by a resident of that country, as long as that country is a member of the Financial Action Task Force (FATF).
What is the procedure for purchasing masala bonds?
Masala bonds are rupee-denominated bonds that are issued outside of India. They are debt instruments that help raise capital in local currency from international investors. These bonds can be issued by both the government and private companies. Any citizen of the country can purchase these bonds, however there are some limits.
Investors can only subscribe to masala bonds whose security market regulator is a member of the International Organization of Security Commission.
Regional and multilateral financial institutions might purchase these bonds as well.
In masala bonds, who bears the risk?
Masala bonds are bonds that are issued outside of India but are denominated in Indian Rupees instead of the local currency. Masala is an Indian word that translates to “spices.” The International Finance Corporation (IFC) coined the word to describe India’s culture and food. Unlike dollar bonds, which pass the currency risk to the borrower, Masala bonds pass the risk to the investors. In November 2014, the World Bank-backed IFC issued the first Masala bond, raising $1,000 crore to fund infrastructure projects in India. In August 2015, the International Financial Cooperation issued green masala bonds for the first time, raising Rupees 3.15 billion to be used for private sector investments in India that address climate change.
HDFC became the first Indian business to issue masala bonds when it obtained 3,000 crore rupees from them in July 2016. NTPC, a public sector unit, issued the first corporate green masala bonds for 2,000 crore rupees in August 2016.
What are Kerala masala bonds?
Raghuram Rajan, then the finance ministry’s senior economic advisor, declared in October 2013 that certain domestic companies (corporations, bodies corporate, and Indian banks) might issue bonds denominated in the Indian Rupee and sell them in overseas markets. Soon after, the International Financial Corporation (IFC) issued $10 billion in bonds nicknamed “Masala Bonds,” conjuring popular images of Indian cuisine.
The KIIFB issued the first-ever sub-sovereign masala bond on the London Stock Exchange on May 1, 2019. The KIIFB raised ‘23,232.64 million in rupee-denominated bonds after initially issuing ‘21,500 million in rupee-denominated bonds. The funding provided by the sale of these bonds assured the ability to reconstruct critical public infrastructure that had been devastated as a result of the devastating Kerala floods in August 2019. In retrospect, the time for entering overseas markets was ideal.
The introduction of GST in 2017 resulted in major revenue shortfalls and a reduction in fiscal autonomy, as states were forced to rely on the GST Council for money. To make matters worse, by May 2019, Kerala has been hit by a slew of natural calamities, including repeated floods and a Nipah outbreak. KIIFB provides a realistic option for generating extra cash. Domestic borrowing was more expensive for nations than borrowing on the international market.
For example, in the Indian bond market, securities with coupon rates as high as 10.15 percent were issued. KIIFB bonds were able to acquire lower financing options by taking use of the foreign bond market, even at a rate of 9.72 percent. Despite this, the KIIFB bonds had the 6th highest coupon rate among international currency denominated bonds, as well as the highest ‘Masala’ Bond. As a result, international borrowing was not only more profitable, but it also insured a faster flow of revenue.
These international borrowings look to be able to cover transitory revenue deficits and absorb devolution delays. Will these borrowings, however, be sustainable? There are two essential indicators that may provide some insight into the debt’s long-term viability. First, there’s the economy’s historical performance and what it’s expected to be like in the next years. Kerala’s GDP is expected to grow by roughly 12 percent in 2019-20. If the state’s performance improves in line with the aggregate expectations, the cake will grow in size. Is this sufficient to assure Kerala’s ability to service its debt? No.
The cost of servicing total debt is the second element (old, accumulated debt as well as the new domestic and international borrowings). Kerala’s internal debt to total revenue ratio was the fifth highest among the 29 states for which data was available in 2018-19. However, borrowing from the foreign market changes the composition of its total debt, as well as its ability to repay based on a lower interest rate on the international market.
According to the Kerala Ministry of Finance, their long-term plans include a method for repaying these bonds. They allege that the petrol cess, as well as up to 50% of the motor vehicle tax, will be used to repay the KIIFB debts. These techniques are likely to retain investor confidence while also ensuring that these borrowing channels can be used to generate temporary revenue. If the ‘new’ Kerala model of financing government spending succeeds, it will usher in a new era of federalism. It would undoubtedly aid nations in maintaining their sovereignty and concentrating on decentralized development. It could pave the path for other nations to follow suit, fueling their desire to break free from the confines of financial centralisation.
In India, who can issue bonds?
In India, the central government issues both treasury bills and bonds or dated securities, whereas state governments exclusively issue bonds or dated securities, known as State Development Loans (SDLs).
Where can masala bonds be purchased?
The India International Exchange (INX), the London Stock Exchange (LSE), and the Luxembourg Stock Exchange all trade Masala Bonds. On the London Stock Exchange, 43 Masala bonds have been issued in the past. In the following link, you can learn more about Masala Bonds – Benefits, Features, and Significance.
Masala bonds from Indian public sector companies such as the National Highway Authority of India (NHAI), the National Thermal Power Corporation (NTPC), and private sector corporations such as HDFC Bank have been accepted by the London Stock Exchange.
UNCTAD’s World Investment Report (United Nations Conference on Trade and Development)
What exactly is a Maharaja bond?
The International Finance Corporation (IFC) issues Maharaja bonds to boost India’s domestic capital markets. Maharaja bonds are bonds that are denominated in rupees. In the following link, you can learn more about Masala Bonds – Benefits, Features, and Significance.
The bonds are traded on the National Stock Exchange, and the proceeds will be used to fund infrastructure projects in India.
What is the rate on corporate bonds?
A corporate bond is a sort of financial product that is sold to investors by a company. The company receives the funds it requires, and the investor receives a certain number of interest payments at either a fixed or variable rate.
What exactly is an Elephant Bond?
An Elephant Bond is a rupee-denominated bond with a 25-year maturity and a fund dedicated solely to infrastructure development. The committee has proposed that those with hidden income be required to invest in such bonds.