Explain about Masala bound and their process also discuss the pros and cons.

Structure of answer:

  • Introduction (Background of bond about bound).
  • What is the process of bond?
  • Importance of the bond.
  • Pros and cons.
  • Conclusion (Importance in raising capital).

Key points:

  • “Masala Bonds” are the 10 year off-shore rupee bonds issued by International Finance Corporation (IFC), a member of the World Bank group, in the international capital market in 2014, to raise funds for supporting private sector infrastructure development initiatives in India. Masala bonds are listed in London Stock Exchange.
  • The term Masala bonds now extends to any rupee denominated bonds issued to overseas buyers even though RBI has not resorted to the use of this name in their guidelines.
  • Other off-shore bonds, are intended for those foreign investors who want to take exposure to Indian assets, yet constrained from doing it directly in the Indian market or prefer to do so from their offshore locations.
  • Offshore bonds have its own set of advantages and disadvantages for both the issuer and the investor as well as for the economy.
  • Competition from offshore markets may induce improvements in domestic bonds markets such as strengthening of domestic market infrastructure, improving investor protection and removing tax distortions that hinder domestic market development etc.
  • Against these benefits come the risks associated with financial openness and sudden shifts in capital flows, and the risk that offshore markets may draw liquidity away from the domestic market.
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