The Reserve Bank of India last week served up much-awaited draft guidelines on offshore rupee, or Masala, bonds - but failed to cheer the market, as the proposals were seen as too timid and restrictive. India's central bank had said in early April it would allow Indian companies to issue Masala bonds in a move seen as a step towards full currency convertibility and a potential way of lowering the country's high cost of capital. However, the proposed framework brings corporate Masala bonds under the external commercial borrowing (ECB) guidelines, which prevent most Indian companies from borrowing more than US$750m overseas each year. The ECB framework also sets restrictions on pricing, volume and end-use of corporate Masala notes and bars Indian banks from issuing any such bonds altogether.
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