Facts about Masala Bonds | Fusion - WeRIndia

Masala bonds are issued by Indian entities in order to raise money from foreign investors for different projects. These are debt instruments.

Normally if a company issues Masala bonds worth ₹10 billion by assuring to repay ₹11 billion in a year, then investors from abroad will extend dollars equal to the amount of ₹10 billion; the company has to pay back with interest to the investors as dollars equivalent of ₹11 billion. In this way, masala bonds work.

Here are some interesting facts about Masala bonds:

• These are rupee-dominated bonds and were given name as ‘masala bonds’ by International Finance Corporation (IFC) to give it an Indian style of name. IFC is the investment arm of World Bank.
• These bonds are issued outside India in Indian rupees.
• They were issued for the first time in 2013 in order to aid infrastructure activities in India worth ₹1,000 crore.
• IFC gave various similar names to bonds of other currencies as well. For instance, yen-denominated bonds were named Samurai and yuan-denominated bonds were named Dim sum bonds.
• Later many companies including NHAI, IIFCL, NTPC, HDFC and REC issued masala bonds.
• Masala bonds help improve the strengthening of rupee value.
• In order to reduce the deficit in the current account, Indian government wants to provide some relaxation to these bonds.
• Currently, there is a withholding tax on these bonds which is 5 percent. Government wants to withdraw this tax on the bonds that are being issued until March, 2019.
• Even the restrictions on marketing as well as underwriting the masala bonds will be removed.
• No masala bonds have been issued in this fiscal year so far.
• Normally, if rupee value is stable, investors subscribe to these masala bonds as they yield stable returns.
• However, in the current scenario where rupee value is highly volatile, investors hesitate to subscribe to these bonds.
• However, if any companies issue these bonds, then the money will flow back into the country which in turn helps strengthen the country.

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