Banks empowered to issue masala bonds!
Q. RBI has given banks the right to issue masala bonds in foreign markets, also known as ________.- Published on 07 Nov 16a. Rupee denominated bonds
b. Green bonds
c. Tea bonds
d. None of the above
ANSWER: Rupee denominated bonds
The Reserve Bank of India has permitted banks to issue rupee denominated bonds in the overseas market.
- These are also called masala bonds.
- The aim is to shore up the capital base and financing as well as affordable housing infrastructure.
- Banks can raise perpetual debt instruments which can be considered for calculating the bank’s additional tier 1 capital or debt capital instrument that can calculate the bank’s tier 2 capital.
- Bonds will be issued under Basel III norms.
- They will therefore have the loss absorption clause.
- As per the clause, the bank can opt for not honouring coupon payment in the event of financial stress.
- For financing infrastructure, and reasonable housing, banks can issue long term bonds which don’t have the loss absorption clause.
- Central bank first announced the notion of masala bonds on Aug 25, when a slew of measures were announced to develop the bond and currencies market.
- Additional funds generated from the rupee bond route will help develop the market of masala bonds overseas.
