Source: TH
Context:
- The Enforcement Directorate (ED) has issued show-cause notices to:
- Kerala Chief Minister
- Former Finance Ministry officials
- KIIFB (Kerala Infrastructure Investment Fund Board) officials
- Alleged violations pertain to FEMA and RBI regulations related to KIIFB’s 2019 Masala Bond issuance.
What is a Masala Bond?
- Definition: Rupee-denominated bonds issued overseas by Indian entities to raise funds.
- Currency Risk: Borne by the investor, not the Indian issuer.
Introduction & Regulation
- First issued by IFC in 2014 (~₹1,000 crore).
- Officially allowed by RBI in 2015 under the rupee-denominated bond framework.
Objectives
- Enable Indian corporates, NBFCs, and infrastructure trusts to raise global capital in INR.
- Reduce reliance on External Commercial Borrowings (ECBs).
- Shift forex/currency risk to investors.
- Promote internationalisation of the Indian rupee and deepen offshore rupee markets.
Key Features
- Rupee-denominated: Priced and redeemed in INR, but subscribed overseas.
- Investor bears currency risk: Unlike ECBs, where the borrower assumes forex risk.
- Eligible Issuers: Indian corporates, NBFCs, REITs, InvITs.
- Global Listing: Can be listed on exchanges like London and Singapore.
- Usage Restrictions: Cannot fund:
- Capital market investments
- Real estate (except affordable housing)
- Land purchase
- FDI-prohibited sectors
- Maturity: Initially 5 years, later reduced to 3 years.
- Tax Incentives:
- 5% withholding tax on interest
- Capital gains from rupee appreciation exempt
