A rupee denominated bond (or sometimes referred as masala bond )is a bond issued by an Indian entity in foreign markets and the interest payments and principal reimbursements are denominated (expressed) in rupees.
The peculiarity of rupee denominated bond is that buying of bonds, interest payments and repayment all are expressed in rupees. All payments are converted into corresponding dollar values at the time of payment. The term ‘masala bond’ is also used to describe rupee denominated ever since the first issuer of rupee denominated bonds used the name masala bonds in its first issue. RBI in its August 2016 regulations also used this name.
Masala bond vs rupee denominated bonds
Technically, what is important is rupee denominated bonds. This is because, when a bond is issued in foreign market by declaring its disbursal in local currency, the bond should be known after the local currency ie, rupee denominated bonds. But during its first issue by the IFC, the institution has called it as Masala Bond. Later, this acronym has been popularized and the RBI also referred such overseas bonds as Masala Bonds. Similarly, for the Chinese Renminbi, there is the Dim Sum Bond.
