Masala bonds are bonds issued outside India denominated in Indian rupees rather than foreign currencies. International Finance Corporation named it masala bonds to give a local flavour by calling to mind Indian culture and cuisine. Indian companies can issue masala bonds in addition to the cooperate bonds. It helps the Indian companies to cut down cost. If the company issues any bond in India, it carries an interest rate of 7.5%-9% whereas masala bonds outside India is issued below 7% interest rate. It helps companies to tap a large number of investors as these bonds are issued in the offshore market.
offshore investors earns better returns by investing in Masala bonds rather than by investing in his home country. It allows Indian companies, banks, non-banking finance companies and infrastructure investment trust and real investment trust to issue rupee denominated bond overseas.
1) It helps the Indian companies to cut down cost.
2) It assists the Indian companies to diversify their bond portfolio.
3) India is the rare fast growing large economy and masala bonds are one of the way for investors to take advantage of this.