India takes the spice out of Masala bonds??

One just posted about RBI trying to spice up the housing market despite it being really heated already.

There was another measure in recent policy on the so called masala bonds (bonds which allow to raise money in Indian rupees in foreign countries). The idea was to make them similar to External Commercial Borrowings (borrow abroad in foreign currencies).

However, it seems this measure has taken the spice from the masala bonds:

New guidelines on offshore rupee bonds will put the brakes on the growth of the Masala bond market, according to debt bankers.

The Reserve Bank of India last Wednesday brought the Masala bond market in line with existing rules on external commercial borrowings in other currencies. As a result, Masala bonds must have a minimum original maturity of three years, rising to at least five years for deals over $50 million, and coupon rates must be no more than 300 basis points over the government curve.

The changes temper earlier efforts to stimulate the growth of the offshore rupee market, which allows Indian companies to borrow overseas without taking currency risk, and have not gone down well with market participants.

“The central bank is clipping the wings when the market was just starting to take off,” said a fixed income trader from a foreign bank.

In the past three months, Housing Development Finance Corporation, National Highways Authority of India and power generation company NTPC have all sold Masala bonds, raising interest in the format.

While NHAI and NTPC sold five-year debt, the three-year tenor has been popular for non-banking finance companies such as HDFC, Shriram Transport Finance and Indiabulls Housing Finance.

“The new guidelines will affect the plans for housing finance companies which were keen on raising Masala bonds above $50 million for three years,” said another DCM banker.

Most bankers feel the move will stall a market that was already struggling to gain traction.

“It is a retrograde step for sure; it will kill the Masala market further,” said an executive director from a foreign bank. “It will de facto rule out credit (corporate) borrowers, non-sovereign and non-quasi-sovereign issuers.”

However there are others who are not as pessimistic:

However, not all agree that the new RBI guidelines will have a negative impact on the Masala market.

“There has been a decent appetite, and good issuers will continue to tap the market,” said Ajay Manglunia, head of fixed income at Edelweiss Capital. “Masala bonds will be well received for the five-year maturity as well.” 


Reflecting on RBI’s history, the move is not surprising. The central bank is seen as conservative on these matters and usually tries to curb any excessive activity (though the recent housing bit is surprising given the evidence). Thus, it is criticised when things are spicing up and when there is a crisis, it is praised.

2 Responses to “India takes the spice out of Masala bonds??”

  1. Says:

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    India takes the spice out of Masala bonds?? | Mostly Economics

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