Masala bond is a term used to refer to a financial instrument through which Indian entities can raise money from overseas markets in the rupee, not foreign currency.

What is mean by “Masala Bond”?

Masala Bonds are rupee-denominated borrowings issued by Indian entities in overseas markets. Masala means spices and the term was used by International Finance Corporation (IFC) to evoke the culture and cuisine of India on foreign platforms.


The first Masala bond was issued by the World Bank– backed IFC in November 2014 when it raised 1,000 crores bond to fund infrastructure projects in India. Later in August 2015 International Financial Cooperation for the first time issued green Masala bonds and raised Rupees 3.15 Billion to be used for private sector investments that address climate change in India.


The main objective of issuing Masala Bond to make the funding available for infrastructure projects in India. Also, to fuel internal growth and internationalize Indian currency.


In Masala Bond, the entire risk is borne by the investor and hence, during repayment of bond coupon and maturity amount, if rupee depreciates, RBI will realize marginal saving.

International Finance Corporation(IFC), an arm of the World Bank, issued rupee-denominated borrowing in international markets during fiscal 2015 (year ended June, 30, 2015). It came up with two bond issues: Maharaja Bonds which were issued to Indian investors and the other one was Masala Bonds that were issued to overseas investors. These Bonds were issued with the specific approval of RBI.


Any corporate or body corporate, Indian banks, Real Estate Investment Trusts (REITs) and Infrastructure Investment Trusts (InvITs) are eligible to issue these denominated bonds overseas. Resident entities like Limited Liability Partnerships and Partnership firms are, however, not eligible to issue these bonds.


Yes, the bond is traded on the London Stock exchange and not in India.


The minimum maturity period for Masala Bonds raised up to $50 million equivalents in INR per financial year should be 3 years and for bonds raised above $50 million equivalent in INR per financial year should be 5 years.


Since the bonds are issued in INR, the forex related risk is on the investor and not the company. The benefit of the rupee-denominated bonds is that it will encourage foreign buyers to deal more in rupees, hence, internationalization of rupee can be promoted by rupee denominated bonds. These bonds also aid India’s geo-economic goals.


The subscriber of these bonds have greater flexibility to transfer / sell the Rupee Bonds to a third party (domestic or offshore) but the issuer cannot use the proceeds from the issue for real estate activities or capital market investment. However, it can be utilized for development of integrated township / affordable housing project or any other infrastructural development project.

Thus, this bond will help the Indian corporates to reduce its interest cost burden on the debt amount on its balance sheet. The more of foreign funds can be used for infrastructural development in the country. Overall, the development of a Masala bond market would be positive for Indian firms, opening up potentially significant new sources of funding over External Commercial Borrowings (ECB).