Banks empowered to issue masala bonds!

Q.  RBI has given banks the right to issue masala bonds in foreign markets, also known as ________.
- Published on 07 Nov 16

a. Rupee denominated bonds
b. Green bonds
c. Tea bonds
d. None of the above

ANSWER: Rupee denominated bonds
 
Banks empowered to issue masala bonds!The Reserve Bank of India has permitted banks to issue rupee denominated bonds in the overseas market.
  • These are also called masala bonds.
  • The aim is to shore up the capital base and financing as well as affordable housing infrastructure.
  • Banks can raise perpetual debt instruments which can be considered for calculating the bank’s additional tier 1 capital or debt capital instrument that can calculate the bank’s tier 2 capital.
  • Bonds will be issued under Basel III norms.
  • They will therefore have the loss absorption clause.
  • As per the clause, the bank can opt for not honouring coupon payment in the event of financial stress.
  • For financing infrastructure, and reasonable housing, banks can issue long term bonds which don’t have the loss absorption clause.
  • Central bank first announced the notion of masala bonds on Aug 25, when a slew of measures were announced to develop the bond and currencies market.
  • Additional funds generated from the rupee bond route will help develop the market of masala bonds overseas.

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