RBI takes masala bonds out of corporate bond limit for FPIs
The Reserve Bank of India (RBI) has increased corporate bond investment limit for foreign investors by taking out Masala bonds (rupee-denominated bonds) from ambit of total debt investment limit. They will be considered as part of External Commercial Borrowings (ECBs) and will be monitored accordingly.
Currently, masala bonds are reckoned both under combined corporate debt limit (CCDL) for FPI (Foreign Portfolio Investments) and external commercial borrowings (ECBs). At present, limit for investment by FPIs in corporate bonds is Rs. 2,44,323 crore. It includes issuance of rupee-denominated bonds (RDBs) overseas by resident entities of Rs 44,001 crore (including pipeline). The amount of Rs 44,001 crore arising from shifting of Masala bonds will be released for FPI investment in corporate bonds over the next two quarters.
With surge in inflows in Indian debt markets in current year, cumulative utilisation of FPI limit in corporate bonds stood at 99.07% as on September 2017, reflecting limited scope of further FPI investments. The revised limit is expected to allow FPIs to make additional investments of a similar amount in corporate bonds.
The Masala bonds refer to rupee-denominated bonds through which Indian entities can raise money from foreign markets in rupee, and not in foreign currency. Basically, they are debt instruments used by corporates to raise money from investors. The issuance of rupee denominated bonds, protects Indian entity against risk of currency fluctuation, typically associated with borrowing in foreign currency. It also helps in internationalization of the rupee and in expansion of t Indian bond markets. These bonds are usually traded on the London Stock Exchange (LSE) and not in India.