Apex bank awaits Centre’s feedback on ‘masala bonds’

The RBI is awaiting responses from the Government to release final guidelines on issuance of global rupee offshore bonds by Indian companies.

“We have drawn out the designed features and we have sent it to the government for their views. As soon as they communicate their views, we should be able to put out the guidelines,” H R Khan, Deputy Governor at RBI said at the post bi-monthly monetary policy.

In early April, the RBI had said it will allow Indian companies to raise rupee-denominated debt offshore - known as "masala bonds".

This would for the first time allow domestic firms to raise rupee-denominated debt abroad. These have been eclipsed by the rising cost of funds in international markets, making it harder for cash-starved businesses to take advantage of the relaxed rules.

A weakening rupee and foreign investors cooling appetite in the Indian economy have added to the cost of accessing funds overseas in recent months.

Allowing such bonds for investment by foreign investors is seen as a small step towards internationalisation of the Indian currency, but some experts suggest it is unlikely to be a big hit until growth picks up and the view on the currency improves.

On its impact on the non-deliverable forward (NDF) market, Khan said, “Our approach has been to see there is more and more hedging onshore and so we have recently relaxed the currency future guidelines. We will also facilitate overseas investors who have got exposure to Indian rupee to have access to the hedging market in India. That is our approach and we are working on that.”

Further, he added that RBI will also look at further relaxations in the regulations for more reforms and hedging products and players in the market.

Long term Infra bonds

On long term infrastructure bonds that banks have been allowed to issue, RBI, on request of banks, has allowed banks to trade these bonds by investing in other banks’ bonds.

Governor Raghuram Rajan said, “There was a request form banks if they could trade a small amount. Our intent is not that these bonds should not be a backdoor way for the banks themselves to all hold it and not issue it outside.”

He added that the whole point is to encourage additional flows into the banking sector other than the normal route of government deposits, via bonds into infrastructure.

“The small limits is to ensure it doesn’t become mutual financing but more of a facility to trade and increase liquidity in the infrastructure bonds (sic),” Rajan added.

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