Why Masala Bonds can be a game-changer for Indian companies

September 21, 2022

Masala Bonds have become a popular product in the last few months. While the idea of raising foreign money via Masala Bonds was first employed by IFC, many Indian companies have followed suit. HDFC, Yes Bank, NTPC and IRFC are among the Indian companies that have raised money through the Masala Bonds route. So what exactly is a Masala Bond and how does it operate. What exactly is a Masala Bond? A Masala bond is a Rupee bond but is repaid in dollar terms based on the extant conversion rate. Reputed Indian companies are permitted by the RBI to raise money abroad through Masala Bonds but such bonds have to be for a minimum tenure of 5 years. The bonds are issued in rupee terms and the interest and principal repayment happens in dollar terms. The key difference here is that the issuer does not bear the currency risk in this case; but the risk is borne by the investor. This used to be a major problem for Indian companies issuing dollar denominated bonds in the past.