What are Masala Bonds? Rupee denominated bonds

masala bondsMasala 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.

Objective of Masala Bonds

The objective of these bonds is to fund the cash starving infrastructure projects in India.


  • The masala bonds are denominated in India currency; therefore the foreign investor takes the currency/exchange risk. If the value of Indian currency falls, the foreign investor bears the losses and not the Indian company.
  • The cost of borrowing of masala bonds is less than other sources of funding options available in domestic market.
  • It diversifies the sources of funding to support growth.

First Masala Bond

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.

Green Masala Bonds

IFC coined the term green masala bond to invest the proceeds of the bond in renewable energy and energy efficiency projects.

RBI and Government guidelines

  • These bonds should have minimum maturity of five years and borrowing limit of $750 million per year.
  • The money raise through these bonds cannot be used for Real estate and capital market investment activities.
  • Indian government withdrawn withholding tax on masala bonds to contain rupee fall.

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