Masala bonds, also known as rupee-denominated bonds, are unique debt instruments issued by Indian companies in the global market. The name “masala” is inspired by the vibrant mix of spices in Indian cuisine, symbolising their Indian origin. What makes these bonds distinctive is that they are issued in Indian rupees but offered to overseas investors.
The funds raised through masala bonds can be utilised for a variety of purposes, including infrastructure projects, capital expenditure, and working capital needs.
Origin of Masala Bonds
Masala bonds were first introduced in 2015 by the International Finance Corporation (IFC), part of the World Bank Group. The IFC issued a five-year bond worth ₹1,000 crore, which was oversubscribed 13 times—clearly reflecting global appetite for such instruments. Since then, several Indian corporates have tapped into this route to access international finance.
Why Masala Bonds are Significant
For Indian companies, masala bonds have emerged as a vital financing tool. Being denominated in Indian rupees, they shield issuers from currency fluctuation risks—one of the biggest challenges when raising funds in foreign markets. This stability makes them an attractive option for long-term financing.
Benefits of Masala Bonds
- Access to international capital markets: Indian businesses can raise funds from a global investor base, often at a more competitive cost than domestic borrowing.
- Diversification of funding sources: By going beyond traditional domestic banks and financial institutions, companies reduce dependency on local channels.
- Currency risk protection: Since these bonds are rupee-denominated, issuers do not face volatility linked to foreign exchange rates.
- Potentially lower interest rates: Compared with foreign currency borrowings, masala bonds can sometimes secure lower coupon rates due to higher domestic interest levels.
Regulatory Framework
Under Section 2(30) of the Companies Act 2013, masala bonds fall within the category of debt securities. The Reserve Bank of India (RBI) has laid down clear guidelines:
- Minimum maturity of three years and maximum of ten years.
- Minimum issuance size of ₹150 crore.
- Proceeds must be directed towards approved purposes such as infrastructure, capital investment, or working capital.
Case Study: HDFC Bank’s Success with Masala Bonds
HDFC Bank has been a pioneer among Indian banks in leveraging masala bonds. In 2016, it became the first Indian bank to issue such bonds, raising ₹3,000 crore (USD 450 million) through a five-year issue at 7.875% interest. Oversubscribed by 4.3 times, this issuance reflected strong investor confidence.
Encouraged by this response, HDFC Bank launched further issues:
- 2017: ₹3,000 crore (USD 460 million), three-year tenure, 7.25% coupon.
- 2018: ₹2,775 crore (USD 400 million), five-year tenure, 8.1% coupon.
All issuances were oversubscribed, underscoring rising global demand. The proceeds were channelled into lending, particularly in the affordable housing sector—an area aligned with government initiatives. Importantly, these bonds helped HDFC Bank diversify funding and reduce reliance on foreign currency borrowings, thereby cutting currency risk and lowering financing costs.
| Foreign Bonds | |
| Bond Type | Definition |
| Yankee Bond | A US dollar-denominated bond issued by a foreign entity in the United States. |
| Samurai Bond | A yen-denominated bond issued by a non-Japanese entity in the Japanese market. |
| Maple Bonds | Bonds denominated in Canadian dollars that are issued by non-Canadian entities within the Canadian market. |
| Kangaroo Bonds | Australian dollar-denominated bonds issued by non-Australian entities in the Australian market. |
| Baklava Bonds | Turkish lira-denominated bonds issued by non-Turkish entities in the Turkish market. |
| Matador Bonds | Peseta-denominated bonds issued by non-Spanish entities in the Spanish market. |
| Panda Bonds | Yuan-denominated bonds issued by non-Chinese entities in the Chinese market. |
Conclusion
Masala bonds have proven to be a ground-breaking avenue for Indian companies seeking to raise capital internationally. They provide access to global markets, mitigate currency risks, and often come with favourable interest terms. Backed by a clear regulatory framework from the RBI, they have already shown their potential in cases like HDFC Bank.
As India’s economy expands and infrastructure needs grow, masala bonds are set to play an increasingly crucial role in bridging the funding gap, while simultaneously positioning Indian businesses more strongly on the world stage.
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