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Regulatory Alert - RBI amends the Masala bond regime

08 June 2017

In September 2015, a framework was introduced by the Reserve Bank of India (‘RBI’) for permitting Indian companies for issuing Rupee denominated bonds (also referred to as Masala bonds) for raising international finance. Masala Bonds permitted Indian companies to issue bonds in international market which were denominated in Indian Rupees, thus, transpiring the currency fluctuation risk to the investor rather than on the Indian company i.e. the borrower.

Vide A.P (DIR Series) Circular No. 47 dated 07 June  2017, the RBI had amended some of the regulations governing the Rupee denominated bond regime. A comparative analysis of the existing regulation and changes introduced is summarized in the table below:


Existing provisions



Requirement for RBI approval

No approval required where the bonds met the prescribed guidelines

Any issuance of Masala bond would now be examined by Foreign Exchange Department of RBI


Maturity Period

Minimum maturity – 3 years (irrespective of the amount)

Minimum original maturity period for bonds raised upto USD 50 million equivalent in INR per financial year should be 3 years

Others - 5 year


All-in-cost ceiling

The all-in-cost of borrowing was pegged to prevailing market conditions

The all-in-cost ceiling is now capped to 300 basis points over the prevailing yield of the Government of India securities of corresponding maturity

Recognised Investors

No restriction for a related party to invest under the Masala bond regime


Now, an investor cannot be related party, as defined in Ind-AS 24

BDO Comments

The Masala bond regime, as an investment route, has gained momentum because it opened a new avenue for the India Inc. to access international finance in rupee denominated debt. By bringing in an examination requirement and pegging the rate to Government securities (which is generally lower than the market), the investor base for this mode of providing finance could reduce. Further, now the investor for Masala bond cannot be a related party. This would do away with this  mode of debt financing by overseas parent to its Indian arm.