Masala bonds now part of ECB; FPIs can now raise Rs 44,000 cr more under corp debt

Masala bonds or rupee-denominated bonds issued overseas would now be part of only external commercial borrowings and not be part of the overall limit of corporate bonds to allow about Rs 44,000 crore more funds under corporate debt. Essentially, this amount pertaining to such bonds would be separately allocated to the investors, and it would essentially increase the corporate bond investment limit for foreigners.

The issuance of such bonds overseas will now be within the aggregate current limit of Rs 2.44 lakh crore (Rs 244,323 crore) for foreign investment in corporate debt.

This includes issuance of the masala bonds by resident entities of Rs 44,001 crore (including pipeline), which will be released over the next two quarters -- Rs 27,000 crore in the third quarter, and Rs 17,001 crore in the fourth quarter, RBI said.

An amount of Rs 9,500 crore in each quarter will be available only for investment in infrastructure sector by long term FPIs -- Sovereign Wealth Funds, Multilateral Agencies, Endowment Funds, Insurance Funds, Pension Funds and Foreign Central Banks.

In a notification, the Reserve Bank of India (RBI) on Friday said, “It has been decided, in consultation with the Government of India, to exclude issuances of RDBs from the limit for investments by FPIs (foreign portfolio investors) in corporate bonds with effect from October 3, 2017...However, it should be noted that the reporting of RDBs will continue as per the extant ECB (external commercial borrowings) norms.”

Masala bonds are bonds issued outside India but denominated in Indian Rupees, rather than the local currency. Masala is an Indian word and it means spices.

The masala bonds are presently reckoned both under Combined Corporate Debt Limit for FPI and external commercial borrowings.

Minimum original maturity period for the masala bonds raised up to USD 50 million equivalent in rupees per financial year should be 3 years and for bonds raised above USD 50 million equivalent in rupees per financial year should be 5 years. The call and put option, if any, shall not be exercisable prior to the completion of minimum maturity.