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Masala Bonds: India’s Flavoursome Entry into Global Markets

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 INTRODUCTION:

Masala bonds are bonds issued by Indian companies and valued in rupees that are issued outside of India. They function similarly to conventional bonds, but can only be issued outside of India.

Masala Bonds are a financial instrument that allows Indian entities to raise funds from foreign markets in their home currency, the Indian rupee. These bonds serve as a gateway for investors looking to gain exposure to Indian assets, helping issuers diversify their funding sources.

MASALA BONDS:

Masala Bonds, introduced in India by the International Finance Corporation (IFC) in 2014, are rupee-denominated bonds issued by Indian entities operating outside of India. These debt instruments allow foreign investors to raise funds in the local currency. Masala bonds can be issued by both the government and private entities. These bonds can be subscribed to by investors outside India who want to invest in Indian assets. Masala Bonds’ primary goals are to fund infrastructure projects, promote internal growth through borrowing, and internationalise the Indian rupee.

Recognising masala bonds as rupee-denominated bonds that enable Indian businesses to obtain funds in foreign currencies is essential to understanding their meaning. This reduces currency risk for issuers and investors globally. The bonds have a notable variation in maturity periods: three years for amounts up to $50 million in a fiscal year, and five years for amounts greater.

WHY IN NEWS:

The Kerala High Court ordered the former Finance Minister, Dr. Thomas Isaac, and the Kerala Infrastructure Investment Fund Board (KIIFB) to comply with the Enforcement Directorate’s (ED) summons in relation to the masala bonds case.

LEGAL BACKING OF MASALA BONDS:

Section 2(30) of the Companies Act of 2013 (the “Act”) designates Masala Bonds as debt securities. Consequently, Masala Bonds will be subject to the same rules governing the issuance of debt securities.

Listed companies in India are also required to issue debt securities in accordance with the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. In a circular dated August 4, 2016, the Securities and Exchange Board of India (SEBI) clarified that foreign investment in Masala Bonds will not be treated as an investment by Foreign Portfolio Investors (FPIs) and will not be subject to the amended SEBI (Foreign Portfolio Investors) Regulations, 2014, further streamlining the regime. The Reserve Bank of India oversees Masala Bonds.

CHARECTERSTICS OF MASALA BONDS:

  1. Masala Bonds, issued in INR, provide investors with direct access to India’s growth story.
  2. Masala Bonds can be subscribed to by investors outside India, including those from FATF member countries.
  3. The investor’s country’s securities regulators must be IOSCO members.
  4. Masala Bonds can be used to refinance rupee loans and non-convertible debentures, develop integrated townships and affordable housing projects, and provide corporate working capital.
  5. The funds cannot be used for real estate activities excluding integrated townships and affordable housing, prohibited by Foreign Direct Investment guidelines, investing in domestic capital markets, or purchasing land to lend to other entities.

BENEFITS OF MASALA BONDS:

  • Investors benefit from higher interest rates than other debt instruments. This encourages foreign investors to participate in India’s growth.
  • Masala Bonds boost foreign investors’ confidence in the Indian economy. They help to maintain India’s economic stability by making INR investment more accessible.
  • Capital gains from rupee-denominated bonds are tax-exempt. This encourages long-term investments.
  • Investors can benefit from currency appreciation during the bond’s tenure.

 CONCLUSION:

Masala Bonds are a unique financial instrument that allows companies to raise funds from international markets using Indian rupees. These bonds are an appealing investment option for foreign investors, as they provide a taste of the Indian market while diversifying their portfolio. For India, they attract foreign investment, boosting the economy. Masala Bonds add opportunities and benefits for both borrowers and the Indian economy to the financial landscape, making them appealing to investors seeking global opportunities or those simply interested in international finance.

 

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Written by – Surya Venkata Sujith

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How India’s Banking and Finance Laws Are Set to Change in 2023

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For several years now, banking, investing, and financial management practices have been evolving swiftly throughout India. This has primarily been due to the dual advancement of fintech and internet connectivity. It has increasingly become the norm for Indian consumers and companies alike to conduct financial transactions and related business via digital means. This has led to a more dynamic and inclusive Indian economy, but it has also introduced fresh concerns regarding the need for more financial regulations and protections. Accordingly, earlier this year, Finance Minister Nirmala Sitharaman proposed a series of regulatory amendments for the 2023-24 Union Budget.

The proposed amendments concern the Banking Regulation Act, the Banking Companies Act, and the Reserve Bank of India Act. The collective goals behind them are to “improve bank governance and enhance investors’ protection,” as one write-up summarised.

Now, it is worth noting that similar improvements have been suggested and implemented several times in recent years. On an institutional level, for instance, a wide-ranging banking regulation bill was passed in 2020 to improve the performance of cooperative banks under the supervision of the central bank. And regarding individual Indian consumers who are increasingly active in the fintech world, recent privacy rights protections have made it safer to operate in digital spheres without risking personal data. Where the 2023-24 Union Budget is concerned, however, Minister Sitharaman and the Indian government have suggested more sweeping changes designed to fortify the Indian financial system for ongoing fintech expansion.

Altogether, the proposed amendments are quite comprehensive, suggesting small but significant changes to various aspects of Indian banking and financial law. Here, we will endeavour to examine some of the most significant proposals and how they may change things for consumers throughout India.

Setting Up a National Financial Information Registry

One of the boldest initiatives attached to the Union Budget amendments was the suggested establishment of a National Financial Information Registry or NFIR. Described as a more advanced version of the existing entity of CIBIL, the NFIR would be designed to support more comprehensive credit information checks. CIBIL already helps banks, government entities, and lenders view information related to credit before issuing loans to borrowers. The NFIR, however, would also reveal non-credit information amounting to “all financial information” relevant to a borrower.

There are numerous potential ramifications of such a registry, but two in particular have to do with the ever-evolving banking and financial ecosystem in India. The first is that individuals or companies with questionable credit but responsible financial habits may be better able to secure loans for investment. The second is that lenders will have access to more insight into a financial environment that is increasingly complex.

Simplifying Investor Education and Reclamation

One of the biggest consequences of an evolving fintech economy is a significant increase in online trading activity. As digital financial management has been normalised, individuals throughout India have gained access to mobile apps that provide them with access to international stock markets. These apps offer favourable market conditions, analytical assistance, up-to-the-moment charts, and rapid transaction processing. They have, as it is commonly put, democratised trading. At the same time, however, growing access to market investment has led to calls for more regulations and protections for investors.

One measure within the proposed banking and financial policy amendments that appears to be aimed at this goal is that of simplifying investor education and share reclamation. The Indian government established something called the Investor Education and Protection Fund Authority (IEPFA) back in 2016. It is designed to spread awareness among investors, as well as to issue refunds in relation to unclaimed dividends and other circumstances.

The newly proposed amendments include an effort to build up an IT portal related to the IEPFA in order to simplify its use. This, in theory, would help to protect the growing population of freely trading Indian investors.

Supporting Fintech Development

Ongoing support for fintech development was also a key aspect of Minister Sitharaman’s initial reveal of the proposed banking and finance amendments. Per the Ministry of Finance, Sitharaman commented specifically on fintech services and noted that they have been facilitated by India’s “digital public infrastructure.” She cited entities such as India Stack and UPI but also “proposed to enable more fintech innovative services” moving forward.

Sitharaman also introduced proposals for “up to 100 labs” to be used for the development of 5G applications. These would, in turn, bring about a range of new digital opportunities across industries, as well as create new employment in the process.

Altogether, these aspects of the proposed amendments will all work to support the ongoing growth and spread of fintech practices.

Supporting Digital Payment Infrastructure

On top of general support for fintech expansion, the Ministry of Finance’s recap of Sitharaman’s proposals noted that there is also language in place regarding digital payment infrastructure. Sitharaman cited data indicating that the number of digital payments had increased by 76% in 2022 alone. During the same year, the cumulative value of those payments had increased even more sharply, by 91%. Perhaps more than any other data, these numbers speak to the comfort level the Indian public has reached with making digital financial transactions.

Because of the increases in digital payment activity and value, Sitharaman made sure that her proposals included “continuation of fiscal support for this digital public infrastructure” in 2023-24. By all appearances, the government will continue, if not expand, its financial backing of digital payment infrastructure expansion.

These specific ideas and initiatives do not cover the entire scope of the banking and financial amendments that have been proposed. They do, however, speak to the nature of these amendments. Through initiatives like the ones discussed above, the Ministry of Finance is attempting to both support fintech expansion and make related practices safe and efficient. Digital financial practices offer a world of convenience and opportunity, but it is important that financial institutions, companies, investors, and consumers alike feel safe and confident taking advantage of those benefits. The proposed amendments represent an effort to meet that need.

Thank you for reading, and please return to the site for more information concerning legal news in India!

AUTHOR BIO:
Billy Ann Page is a freelance writer and blog contributor. Her work covers business, finance, technology, and an occasional foray into entertainment coverage. Billy Ann spends much of her time as a nomad, travelling the world to gain a fresh perspective.

References:

https://timesofindia.indiatimes.com/business/budget/govt-proposes-changes-in-banking-regulation-act-other-laws-to-enhance-investors-protection/articleshow/97533273.cms

https://primelegal.in/2023/09/24/the-impact-of-the-digital-personal-data-protection-act-2023-on-privacy-rights-in-india/

https://www.cnbctv18.com/finance/national-financial-information-registry-requires-many-legislative-changes-expert-15960231.htm

https://www.exness.com/ar/

https://pib.gov.in/PressReleasePage.aspx?PRID=1895290

https://primelegal.in