Masala bonds are rupee denominated bonds issued by Indian entities in offshore overseas market. These bonds are issued in Indian currency to foreign investors. Through these bonds the Indian companies raise money from foreign markets. In Indian context, the masala means spices. The International Finance Corporation, a World Bank arm used the name masala bonds to give Indian flavor to bonds on foreign platforms.
These bonds address the classical problem of Indian entities seeking finance from foreign entities. There is inherent risk associated with foreign currency borrowings. The borrower has to pay more on debt/service of interest if the rupee weakens in international market.
The objective of these bonds is to fund the cash starving infrastructure projects in India.
The International Finance Corporation (IFC) launched the first masala bond of $1 billion in 2013. HDFC, NTPC, India Bulls Housing Finance are among the Indian entities who has issued these bonds.
IFC coined the term green masala bond to invest the proceeds of the bond in renewable energy and energy efficiency projects.
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