What are Masala Bonds? Discuss the salient features of Masala Bonds and the risks associated with it. (200 Words)
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KEY POINTS
Features of Masala Bonds
· Masala Bonds are rupee-denominated bonds i.e the funds would be raised from overseas market in Indian rupees. According to RBI, any corporate, body corporate and Indian bank is eligible to issue Rupee denominated bonds overseas.
· The Rupee denominated bonds can only be issued in a country and subscribed by a resident of such country that is a member of financial action task force and whose securities market regulator is a member of International Organisation of Securities Commission.
· While residents of such countries can subscribe to the bonds, it can also be subscribed by multilateral and regional financial institutions where India is a member country.
· The conversion for such bonds will happen at the market rate on the date of settlement of transactions undertaken for issue and servicing of the bonds, including its redemption.
Risks and Limitations
· RBI mandates that the money raised through such bonds cannot be used for real estate activities other than for development of integrated township or affordable housing projects.
· It also can’t be used for investing in capital markets, purchase of land and on-lending to other entities for such activities as stated above.
· According to RBI, the minimum maturity period for Masala Bonds raised up to Rupee equivalent of USD 50 million in a financial year should be 3 years and for bonds raised above USD 50 million equivalent in INR per financial year should be 5 years.
· Since the maturity period is less, long term loans is not possible in the case of masala bonds.
