Why in News?
The Enforcement Directorate (ED) has issued show-cause notices to the Kerala CM, former Finance Minister, and KIIFB (Kerala Infrastructure Investment Fund Board) officials for alleged FEMA violations linked to the KIIFB Masala Bond issue.
Description:
Masala Bonds:
- Rupee-denominated bonds issued in overseas markets by Indian entities, where repayment is in INR, not foreign currency.
- Term ‘Masala’ coined by International Finance Corporation (IFC) to promote Indian culture abroad.
Objectives:
1. Raise funds for infrastructure and domestic investment.
2. Internationalize the Indian rupee.
3. Reduce dependence on foreign currency borrowings.
4. Support the rupee via increased INR demand overseas.
Key Features:
1. Currency risk is borne by the investor, not the Indian issuer.
2. Borrowing cost may be lower than domestic markets.
3. Supports rupee stability if foreign demand is strong.
4. Listed mainly on London Stock Exchange (LSE).
5. Proceeds cannot be used for real estate or capital market operations.
6. Bonds may be sold to third parties (domestic/offshore).
History & Firsts:
1. First Masala Bond (2014): IFC’s Uridashi Masala Bond.
2. First Green Masala Bond: Issued by IFC.
3. First Indian issuer (2016): HDFC.
4. First foreign government issuer: British Columbia (Canada).
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