The term "money laundering" originated in the United States, emerging from the activities of Mafia groups. These Mafia groups amassed vast sums of money through illicit activities—such as extortion and gambling—and subsequently disguised these funds as income derived from legitimate sources (such as laundromats). It is noteworthy that money laundering became a matter of significant concern in the United States around the 1980s. Money laundering refers to the act of disguising illegally acquired "black money" as funds obtained through legitimate means. Essentially, it is a method used to conceal the illicit origins of financial assets. Through money laundering, funds are channeled into specific activities or investments in such a manner that even investigative agencies are unable to trace the money back to its original source. The individual who orchestrates this financial manipulation is referred to as a "launderer." In the process of money laundering,...
The masala bonds were issued on
November 10, 2014, by the International Finance Corporation (IFC), a member of
the World Bank Group in the international capital market to develop
infrastructure in India. Masala bonds are also listed on the London Stock
Exchange. Masala bonds started issuing in India from 2015. IFC also spelt the
word, Masala Bond.
What are Masala Bonds?
Indian companies (both private and
government) have been allowed by the Government of India and the Reserve Bank
of India several types of instruments to raise capital from abroad, one of them
is the Masala Bonds. Companies raise the capital they need by selling masala
bonds abroad. That is, bonds issued in Indian rupees for investment in foreign
capital markets are called masala bonds. It is a corporate bond that is issued
in the international market. Masala Bonds are called masala bonds after the name
of Indian spices. Their minimum maturity period is 3 years, till April 2016
this period was 5 years. It cannot be redeemed before 3 years.
Before the issuance of Masala Bonds,
Indian companies used to issue bonds in dollars for foreign investment, if the
price fluctuated, Indian companies would have to bear the loss, but this is not
the case with Masala Bonds. Foreign investors buy these bonds so as to earn more
interest on bonds issued in rupees. This interest is not available on bonds
that are issued in dollars.
Companies can raise an equivalent
amount of US $ 50 billion per year (US $ 750 million as of April 2016) through
Masala Bonds by automatic route (ie, without prior approval). If they want to
raise more money than this limit, then they have to take permission of the
Reserve Bank. The money borrowed through masala bonds cannot be used to
purchase capital markets, real estate and land.
Who can issue Masala Bonds?
The International Finance Corporation
(IFC) first issued 1000 crore masala bonds in November 2014 for the development
of India's infrastructure. Both private and public companies in India can issue
this bond. Masala bonds are issued by companies in India who need to raise
funds from foreign sources without any risk. Indiabulls Housing has raised $
180 million through masala bonds. Indian Railway Finance Corporation has been
approved to raise $ 1 billion through masala bonds. Apart from these, HDFC
Bank, National Highway Authority and NTPC have also borrowed through masala
bonds.
The current foreign portfolio
investment (FPI) limit for corporate bonds (including 'masala bonds') is Rs
2,44,323 crore comprising only Rs 44,001 crore of masala bonds. The RBI has
made a rule from October 3, 2017, that masala bonds will no longer be part of
foreign portfolio investors (FPIs) and will now be considered as part of
external commercial borrowings. Now if a corporate house wants to sell spice
bonds abroad, then it only has to take permission from the Reserve Bank.
Why are masala bonds beneficial for
India?
Masala bonds are issued in Indian
rupees and upon completion of their maturity period, payments are made not in
dollars but in Indian rupees, which saves a large amount of foreign exchange.
The second biggest advantage of a masala bond is that the losses due to
fluctuations in the exchange rate between the dollar and the rupee have no
effect on the Indian company, ie the issuer of the masala bonds, but the taker. Before
the introduction of masala bonds, corporate houses in India used to borrow in
the form of external commercial borrowings which had to be paid in foreign
currency. At the same time, losses from exchange rate fluctuations also had to
be dealt with. The Indian rupee is recognized globally by masala bonds and there
will come a time when Indian rupee will be accepted by every country like the US
dollar.
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