HDFC's Success Paves Way for Other Indian Issuers to go for Masala Bonds


BENGALURU: Masala bonds, the instruments which enables Indian organizations to raise funds by accessing foreign capital markets, with the currency risk being held by the bond investors has captured the imagination of financial institutions in the country. The success achieved by housing finance major — HDFC with the first-ever Masala bond or rupee-denominated bond have prompted other government-backed finance companies to take notice, believes ‘Moody’s Investors Service’ the Global Ratings major. With government backed finance companies like Power Finance Corporation (PFC), Indian Railway Finance Corporation (IRFC) as well as Non-Banking Financial Companies (NBFC) likely to raise money with the help of such bonds, exciting times are in store. HDFC, had recently stated that it managed raising Rs 3000 Crore after Reserve Bank of India (RBI) had permitted the issuance of rupee-denominated bonds, which are listed on international bonds and settled in dollars in September, 2015.

Moody’s report states that the development of such bonds will enable NBFCs to diversify their funding sources, which has forever been a key weakness for them. The bonds can also help other potential issuers like NBFCs and Government related issuers (GRIs) in setting up benchmark pricing.

The report has also taken into consideration RBIs proposal of putting a cap on the banks’ lending to NBFCs and large corporates as part of reducing banks’ single party concentration while lending. The move is seen as having a huge constraint on the growth of the balance sheet of these entities unless they find alternate funding sources. Moody’s report which finds rupee depreciating by about 5.3 percent on a yearly basis anticipates that Masala bond investors can consider market liquidity, current volatility and transaction costs in addition to the standalone credit assessment of the issuer.

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