Reserve Bank allowed banks to issue ‘masala bonds’ and to accept corporate bonds under the liquidity adjustment facility (LAF).
These measures are intended to further deepen market development, enhance participation, facilitate greater market liquidity and improve communication.
To encourage overseas rupee bonds market, banks are being permitted to issue rupee-denominated bonds overseas (masala bonds) for their capital requirements and for financing infrastructure and affordable housing.
Currently, masala bonds can be issued only by corporates and non-banking lenders like, HFCs and large NBFCs.
Masala bonds are instruments through which Indian entities can raise funds by accessing overseas capital markets, while the bond Investors hold the currency risk.
These will constitute for additional tier-I and tier-II capital for the lenders, adding such overseas bonds can also be issued to finance infrastructure and affordable housing under a current dispensation which applies for foreign currency bond raising.
It can be noted that so far two Indian corporates — HDFC and NTPC — have made use of this facility to raise over Rs 5,000 crore, but the segment was not open to banks.
The RBI will be seeking amendments to enable the central bank to accept corporate bonds under the LAF which is used to bridge temporary liquidity issues by lenders.