The Reserve Bank Wednesday eased norms for companies in manufacturing sector to raise overseas funds and allowed Indian banks to market Masala Bonds in line with the government’s measures to prop up the rupee.
The rupee has been losing value against the US dollar, and had almost touched 72.99 on Tuesday causing worries to government benches
Following this the government went in to damage control mode and an array of measures to check the decline of rupee and curb the widening current account deficit (CAD).
Liberalisation of the External Commercial Borrowing (ECB) norms was among other measures announced by the government.
“It has been decided, in consultation with the government, to liberalise some aspects of the ECB policy including policy on rupee denominated bonds (Masala Bonds) .” the RBI said in a notification.
As per the revised policy, eligible ECB borrowers who are into manufacturing sector, will be allowed to raise ECB up to $ 50 million or its equivalent with minimum average maturity period of 1 year. The earlier average minimum maturity period was three years.
The central bank has also made changes in norms wherein Indian banks can market Masala Bonds overseas.
Masala Bonds are rupee-denominated borrowings issued by Indian entities in overseas markets. Masala means spices and the term was used by International Finance Corporation (IFC) to popularise the culture and cuisine of India on foreign platforms.
The objective of Masala Bonds is to fund infrastructure projects in India, fuel internal growth via borrowings and internationalise the Indian currency.
Presently, Indian banks can act only as arranger/ underwriter for such bonds and in case of underwriting an issue, their holding cannot be more than 5 per cent of the issue size after 6 months of issue.
Now, the banks can “participate as arrangers/ underwriters/ market makers/ traders in RDBs issued overseas subject to applicable prudential norms,” the notification said.
