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Masala Bonds – Are they worth the yield?

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Masala Bonds

After Dim Sum bonds, it is the turn of the Masala Bonds to make a mark in the international markets. Masala bonds are normal bonds which are denominated in Indian rupees. They are good from the perspective of the issuer, as it takes away the foreign exchange risks and also allow them to save on the conversion costs. Some large Indian banks such as HDFC and Axis Banks have come out with large 2-3 year tenure bonds, with a yield which is very near equal to the 10 year Indian bond yields.

There are around 30 bonds which have been listed in the LSE, which is the main gateway for Indian companies looking to raise money overseas. Besides Indian companies, quasi government agencies such as REC, PFC etc. have also raised money in Indian rupees from the international markets for the purpose of funding green projects. These bonds are attractive for investors who are looking to invest in environment friendly projects.

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I think more such issues will come out in the future, as there is a good investor appetite for these bonds. The Indian currency has been one of the most stable EM currencies in the recent past. The Indian economic fundamentals have improved substantially under the new government dispensation, which has controlled both the fiscal deficits and the inflation rate. New reforms are increasing the growth of the Indian economy, even as the global backdrop remains dismal.

Indian corporates also face multiple benefits from masala bonds, as they do not face limits of dollar borrowing. They can also access a much larger market as compared to the domestic market, which is a small one for corporate bonds. The Indian government will also be benefited as it reduces the risk exposure from foreign currency outflows. The risk matching is improved with masala bonds.

“Given that banks are a key source of funding for these entities, the proposed limitations could become a significant constraint on their balance sheet growth, unless these NBFCs and large corporates manage to find alternative funding sources,” the RBI report pointed out. “In addition to the standalone credit assessment of the issuer, we expect Masala Bond investors to consider market liquidity, currency volatility, and transaction costs,” it said.

Source: TOI



Sneha Shah

I am Sneha, the Editor-in-chief for the Blog. We would be glad to receive suggestions, inputs & comments on GWI from you guys to keep it going! You can contact me for consultancy/trade inquires by writing an email to

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