The bonds listed on the London Stock Exchange (LSE) is termed as Masala Bonds. These bonds are offered and settled in US dollar to hike Indian Rupee in International market. These bonds help to raise Indian rupees from International investors for infrastructural development in India. International Financial Corporation (IFC) converts bond from dollars into rupees and uses the rupees to finance private sector investment in India. The term Masala bond was coined by IFC and it is recognized globally.
'Masala' refers to spices and it evokes the culture and cuisines of India. These bonds can be issued by Indian corporates only. No bank is allowed to issue Masala bonds. Some of the corporates like HDFC, Indian Railway Finance Corporation and NTPC are willing to raise funds abroad.
The major component of Masala Bond is its hedging costs. The rupee-dollar equation plays an important role and the stability of this equation gives assurance and confidence to invest. IFC issues Masala bond in the offshore market. The price of a bond is denominated in Indian currency and not in the US dollars, but it is paid in dollars after maturing.
Masala bonds have a quite significant for the Indian economy. Indian Issuers face less risk in Masala bond as compared to bond markets. The currency risk is entirely borne by the foreign investors.