Indian Masala Goes International

Pranav Gupta, Intern at Kaden Boriss Legal and a 4th Year Student of Symbiosis Law School, Noida

Are you pondering to invest from out side India? Then it is the time to get Desi by raising funds from newly permitted Rupee Denominated Bonds (RDBs), which has created a sensational entry in the arena of international investment market. These bonds are the first rupee bonds registered on the London Stock Exchange. IFC titled these bonds as ‘Masala’ which is an internationally renowned expression that evokes the culture and cuisine of India. Masala bonds are Indian rupee denominated bonds issued in offshore capital markets. These are issued to offshore investors settled in dollars and, therefore, the currency risk resides with investors[1].

This is a step towards internationalisation of the Indian Rupee.  Well, this article is an effort to elucidate the concept of Masala bonds by listing its advantages on Indian economy. This research article also spotlights potential risk and benefits to the investors.

stock-exchange-642896_1920Source: PixaBay

In November 2014, a news came as bombshell from IFC (International Finance Corporation) that it has issued a ten year bond (Indian Rupee Denominated Bonds i.e. RDBs) of worth rupees 10 billion to upsurge the foreign investment in India and to muster global capital market to underprop its infrastructure by converting the invested dollar to rupee. IFC decorated it with name Masala to add local flavor by calling to mind Indian culture and cuisine.

London has always been a pre-eminent global center and gateway for international investment. And Masala bond is the first Indian bond to be listed in LSE (London Stock Exchange)[2].  Now it has become a key hub for the leading international market for offshore rupee-denominated debt, nurturing Indian companies to raise money internationally without foreign exchange danger[3].An issuer is restricted to issue bonds a worth maximum $750 in a year with minimum maturity period of 3 years. The prime objective of RBI behind promoting Masala bonds is to enhance the flow of Indian currency in the international market and Indian rupee lucrative. There are currently 12 “masala bonds” listed on London Stock Exchange’s markets with a combined outstanding value of INR 93.76 billion[4]. HDFC is the first to issue Masala bonds and pays an interest rate of 8.33pc. It has a market value of 2.18 trillion rupees, equivalent to roughly £25bn[5].

 Key milestones[6]:

  • Nov 2014: First INR denominated bond listed by IFC in London.
  • Apr 2015: IFC issues a three-and-a-half year, 6.45% bond that raised Rs 16 bn the largest ever rupee denominated bond issued outside India
  • Apr 2015: Reserve Bank of India revises the External Commercial Borrowing framework
  • Aug 2015: IFC issues in London the first INR Green Bond globally. The Rs 3.15bn proceeds were invested in Yes Bank’s onshore green bond.
Particulars Value
Price of a bond in Rupee terms 1200
INR/USD rate on investment date 70
Amount Invested in USD ($) 17.14
Redemption Amount in Rupee terms 1800
INR/USD rate on Redemption date 60
Redemption amount in USD ($) 30
  • July 2016: HDFC lists world’s first offshore Masala bond by Indian corporate on London Stock Exchange.

Features of Masala bonds

  • The Masala bond is an attempt to shield issuers from currency risk.
  • Issued by any company registered under Indian Companies Act.
  • Minimum maturity period is 3 years.
  • Indian banks, partnerships and limited liability partnerships are not permissible for issuing these bonds (Reserve Bank of India).
  • Companies can raise as much as $750 million per annum through Masala bonds.
  • Masala bonds should not be used for the real estate projects and in the areas reserved for the Foreign Direct Investment.
  • Profit calculation: The investor pays $17.14 and receives $30 i.e. the investor is earning a profit more than $12.5 on his investment in Masala Bonds.
  • Loss calculation: Similarly if dollar’s value does up at the time of redemption, then investor may suffer loss.

Details of RBI Guideline

  • No Indian banks (incorporated in India) are allowed to have access to these bonds.
  • Investor will be eligible to hedge both the foreign currency risk as well as credit risk through permitted derivative products in the domestic market.
  • The investor can also access the domestic market through Indian banks abroad or branches of foreign banks with an Indian presence.
  • Only those Indian companies eligible to raise money through the external commercial borrowing (ECB) channel can issue rupee-linked bonds in the overseas markets.
  • Firms permitted to raise ECB without prior RBI permission can continue to raise money through bonds without informing RBI, while firms that need approval will have to seek permission from the central bank before they issue such bonds.
  • Institutions like the International Finance Corporation (IFC), in which India is a shareholding member, will not require any permission from RBI if the issue proceeds are entirely invested in India, but it will have to take permission if it is raising money in rupees to fund any member country other than India.
  • The amount and average maturity period of such bonds should be as per the extant ECB guidelines. The call and put option, if any, shall not be exercisable prior to completion of applicable minimum average maturity period.[7]

Benefits Of Masala Bond

To Issuer Company:

  • It helps Raising international liquidity to the issuer companies can now diversify their portfolio.
  • It will further reduce the cost[8]. Eg. If the issuer company issues the bonds in India then the issuer company needs to pay about 7.5-9.00% of interest. Whereas in case of masala bond, the rate of interest on such bonds is less than 7%.
  • Masala bonds facilitates in grabbing larger portion of the market and which will consequently enhance the Indian Economy.
  • Encourages FDI.
  • Facilitates alternative funds for issuer companies.
  • In this case currency risk lies with the investor.

To Investor:

  • At the time of maturity, Investors will fetch benefit in case of appreciation in value of Indian rupee.
  • Retail investors and institutional investors can make investment in Masala bond.
  • Finance ministry has deducted withholding tax[9] on interest income made out of Masala bond to 5 % from 20%.

Masala bond is a great opportunity for Indian companies to raise fetch funds from international investors which will assist in reducing the debt on Indian Companies. It is a strong experiment of converting Indian currency with overseas money. Masala bond are a great source of alternative funding. Regardless of the initial glitches on pricing, masala bonds have potential to raise $5 billion in upcoming 2 years. The real success of India economy would be to win the confidence of foreign investors by liberalizing its policy for them so as to make Masala bond more lucrative. It is a great step towards a brighter future of Indian economy.


[1] What are Masala Bonds?;

[2]What are Masala bonds and its benefits by Jitendra Singh;

[3]Economic Times Article “London Calling” by Nikhil Rathi, CEO, London Stock Exchange plc& Director of International Development, LSEG, SuneelBakhshi, CEO, LCH.Clearnet Group;

Indian Rupee Bonds on London Stock Exchange;

[5] UK claims global victory with first masala bond issued outside India;

[6]ibid (fact sheet by London stock exchange)

[7]– See more at:

[8] Masala Bonds – A New Dish in the Indian Bond Market Platter by Anshika ; p.118 [VOLUME 3 I ISSUE 3 I JULY – SEPT. 2016] , IJRAR- International Journal of Research and Analytical Reviews

[9] A tax deducted at source on residents outside the country.