Masala bonds are a major innovation where multiple benefits are combined. Comment.
Masala bonds are bonds issued outside India but denominated in Indian Rupees, rather than the local currency. Masala is a Hindi word and it means spices. The term was used by IFC of the WB group to evoke the culture and cuisine of India. Unlike dollar bonds, where the borrower takes the currency risk, masala bond makes the investors bear the risk. The first Masala bond was issued by the World Bank backed International Finance Corporation in 2014 when it raised 1,000 crore bond to fund infrastructure projects in India. Later in August 2015 International Financial Corporation for the first time issued green masala bonds and raised Rupees 3.15 Billion to be used for private sector investments that address climate change in India.
In July 2016 HDFC raised 3,000 crore rupees from Masala bonds and thereby became the first Indian company to issue masala bonds. In the month of August 2016 public sector unit NTPC issued first corporate green masala bonds worth 2,000 crore rupees.
Benefits are: companies get credit; country gets forex; rupee appreciates and stabilises; imports are facilitated due to forex build up; brand India gains; forex build up for the RBI for its stabilising operations; BOP of the country becomes stable as forex buildup; rupee stabilises; investment in the country is boosted.
