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Reversal on rupee-denominated debt

RBI has gradually increased the limit on FPI investment in onshore rupee-denominated debt

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Rupee-denominated Debt

Bhargavi Zaveri & Radhika Pandey 

Bhargavi Zaveri & Radhika Pandey

The Reserve Bank of India (RBI) has, since 2015, been liberalising foreign investment in offshore raised by Indian firms. In September 2015, it allowed Indian companies to issue rupee-denominated bonds that could be traded offshore (popularly called masala bonds). Before this, foreigners could subscribe to onshore rupee-denominated bonds through Sebi-registered foreign portfolio investors (FPIs) only. In November 2015, the RBI issued a more liberal external commercial borrowings (ECB) framework, governing Indian firms raising foreign debt. The RBI has also been gradually increasing the limit on FPI investment in onshore . However, on June 7, the RBI announced three changes in the framework governing masala bonds that reverse this progressive trend. One, it capped the coupon rate that Indian issuers can offer on masala bonds. Two, it raised the minimum maturity period for such bonds, where the issue size exceeds USD 50 million. Three, it declared that proposals for the issuance of masala bonds will be cleared by the foreign exchange department of the RBI. These changes are inimical to Indian firms, many of which are already starved of capital as Indian banks become increasingly averse to corporate lending.

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First Published: Mon, June 19 2017. 22:39 IST
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