Banks to come up with Masala Bonds

During last week of August, the Reserve Bank of India (RBI) has allowed banks to raise capital through masala bonds in the overseas markets. The central bank has allowed resident individuals to maintain greater open positions in the currency market and lifted some of the restrictions on hedging in the currency market, essentially opening up India’s closely guarded currency market.

To encourage overseas rupee bonds market, banks are being permitted to issue rupee-denominated bonds overseas (masala bonds) for their capital requirements and for financing infrastructure and affordable housing. RBI has also decided to seek suitable legal amendments to enable it to accept corporate bonds under the Liquidity Adjustment Facility (LAF).

Now, masala bonds can be issued only by corporates and non-banking lenders like, HFCs and large NBFCs. Masala bonds are instruments through which Indian entities can raise funds by accessing overseas capital markets, while the bond investors hold the currency risk.

HDFC has raised Rs 4500 crore via masala bonds till date. Among companies lined up to sell masala bonds are housing finance company Dewan Housing Finance Corporation, Shriram Transport Finance Company and Fullerton India.