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Sources aware of the development told ET that in recent talks at the Gandhinagar-based GIFT City, the government, the Reserve Bank of India (RBI) and investors had discussed early plans regarding the quantum of the bond sale and other operational matters.
“The early-stage discussions are on for a debut issuance of around ₹20,000-25,000 crore. The government is looking to tap into FPI interest in Indian bonds in the GIFT city,” said a source. “While diversifying the sources to borrowing, the government is also looking to raise funds through masala bonds at a lower rate of interest.”
A masala bond, named after India’s spices-based signature cuisine, refers to an offshore sovereign bond issue denominated in rupees. North Block has so far restricted its borrowing programme only to local investors, with foreign players permitted investment within certain limits. Full overseas investment is permitted only in a few specified securities that are eligible for inclusion in global indices.
To be sure, since the bonds are denominated in rupees, overseas investors carry the risk of adverse currency movements.
Large global banks such as Deutsche Bank and Standard Chartered Bank have branches in the GIFT City. Many of the global banks are custodians of foreign investment flows.
On Tuesday, reports quoted International Financial Services Centres Authority Chairman K. Rajaraman as saying that the government was looking at the issuance of a masala bond at the GIFT City and that the Centre and the RBI would take a final call. He did not provide a proposed quantum of issuance.The IFSCA is the regulator of the GIFT International Financial Services Centre.
While Indian corporate entities have issued masala bonds, the government so far has not taken such a step. Since the COVID pandemic, the government’s borrowing has ballooned as the Centre had expanded its fiscal deficit to increase spending and support the economy through the crisis.
In FY24, the government has announced a record high gross borrowing programme of Rs 15.43 lakh crore. While domestic bond yields have remained well-anchored over the past year despite monetary tightening by the RBI, yields have hardened over the past month as the central bank has said it will conduct open market bond sales to drain out liquidity durably from the banking system.
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