Masala Bonds Machnisem in Economy-:

What is the masala Bonds Machnisem ?

Masala Bonds are industrial securities that can be issued by the private sector or public sector companies in order to raise funds from abroad.

Normal bonds that are issued in order to raise funds from a foreign source are mainly dollar denomination, euro denomination, yen, or pound denomination bonds. They are sold to an interested investor and the fund is raised in the form of foreign currency. It means that if the domestic currency depreciates the outstanding debt will automatically increase. In the case of normal bonds, this risk has to be borne by the borrower or the issuer.

However, in the case of Masala Bonds, it is just the opposite. Masala Bonds are rupee denomination bonds i.e., the value is printed in the form of the rupee. When they are sold, a fund in the form of a dollar or any other hard currency equivalent to the face value printed can

be raised. When on maturity, repayment has to be done then again hard currency equivalent to the face value printed in the form of rupee has to be given back based on the current exchange rate. Hence, there the risk rooted in the exchange rate is borne by the lender. So it is popular among Indian companies.