Global rating agency Moody’s Investors Service has said that HDFC’s issuance of masala bonds will open the market for other potential issuers, particularly non-bank finance companies (NBFCs) and government-related issuers (GRIs).

Private mortgage lender Housing Development Finance Corporation (HDFC) had a few days ago raised ₹3,000 crore through masala bonds — a rupee-denominated bond in the overseas market.

This issuance is the first masala bond by a corporate entity, following issuances by International Finance Corporation (IFC) and Asian Development Bank (ADB). “We expect the market to deepen further with more issuers following HDFC’s issuance,” said Alka Anbarasu, a Moody's Vice President and senior analyst.

Masala bonds — although denominated in Indian rupees — are listed on the international market and offered and settled in US dollars, providing easier access for foreign investors.

Anbarasu also highlighted that the rupee had depreciated by about 5.3 per cent year-on-year, allaying investor concerns about emerging market currency risk at a time when financing conditions have become less favourable for many developing countries.

The development of the masala bond market will help NBFCs diversify their funding sources, according to Moody’s.

Currently, regulatory restrictions prevent NBFCs from accepting current and savings deposits. Companies are, therefore, reliant on expensive and less granular funding from wholesale markets and institutional investors.

In September 2015, the RBI had issued guidelines allowing Indian corporates, NBFCs, real estate investment trusts and infrastructure investment trusts to issue masala bonds.