Introduction

The RBI, on 29th September, 2015, through A.P. (DIR Series) Circular No.17, relaxed external commercial borrowing to allow Indian corporates to raise funds from overseas market by issue of rupee-denominated bonds. In its fourth bimonthly monetary policy RBI has decided to permit corporates to issue rupee denominated bonds often referred as ‘masala bond’ with a minimum maturity of 5 years at overseas locations within the ceiling of foreign investment permitted in corporate debt of $51 billion. there will be no restriction on the end use of funds except a small negative list. The framework for the rupee denominated bonds will be announced separately. This article will provide you with the broad contours of the framework.

Key features

1. Eligible borrowers
   • Any corporate or body corporate
   • Real Estate Investment Trusts (REITs) and
   • Infrastructure Investment Trusts (InvITs).
2. Recognised investors – Any investor from a Financial Action Task Force (FATF) compliant jurisdiction.
3. Type of instrument – Only plain vanilla bonds, either placed privately or listed on exchanges as per host country regulations.
4. Maturity
   • Minimum maturity period of 5 years.
   • The call and put option, if any, shall not be exercisable prior to completion of minimum maturity.
5. All-in-cost – All in cost should be commensurate with prevailing market conditions.
6. Amount
   • Under the automatic route: the amount equivalent of USD 750 million per annum.
   • Under the approval route: Cases beyond the above limit of amount equivalent of USD 750 million per annum.
7. End-uses – No end-use restrictions except for the following negative list:
   • Real estate activities other than for development of integrated township / affordable housing projects,
   • Investing in capital market and using the proceeds for equity investment domestically,
   • Activities prohibited as per the FDI guidelines,
   • On-lending to other entities for any of the above objectives; and
   • Purchase of land.
8. Conversion rate – The foreign currency – Rupee conversion will be at the market rate on the date of settlement for the purpose of transactions undertaken for issue and servicing of the bonds.
9. Hedging
   • The overseas investors will be eligible to hedge their exposure in Rupee through permitted derivative products with AD Category – I banks in India.
   • The investors can also access the domestic market through branches / subsidiaries of Indian banks abroad or branches of foreign bank with Indian presence on a back to back basis.
10. Leverage – The leverage ratio for the borrowing by financial institutions will be as per the prudential norms, if any, prescribed by the sectoral regulator concerned.
11. Applicability of other provisions – All other provisions of extant ECB guidelines will be applicable for borrowing by issuance of Rupee denominated bonds overseas, such as
    • Reporting requirements (including obtaining Loan Registration Number through submission of Form 83 where type of ECB is to be specifically mentioned as borrowing through issuance of Rupee denominated bonds overseas),
    • Parking of bond proceeds,
    • Security / guarantee for the borrowings,
    • Conversion into equity,
    • Corporates under investigation, etc.