Photo: Bloomberg
Photo: Bloomberg

RBI releases guidelines for rupee denominated overseas bonds

Indian corporates will be allowed to raise rupee-denominated bonds overseas for most purposes barring a few, says RBI

The Reserve Bank of India (RBI) on Tuesday said Indian corporates will be allowed to raise rupee-denominated bonds overseas for most purposes barring a few. Earlier in the year, RBI had said that it intends to allow rupee bonds to be issued overseas, known as Masala bonds, as a way to reduce the currency risk associated with foreign borrowings.

Issuing detailed guidelines, the RBI said there will be no end use restrictions except for a small negative list. Companies cannot use proceeds from overseas rupee bonds for real estate activities, land purchase, investing in capital markets and on-lending to other entities for such activities.

The guidelines suggest that raising rupee-denominated bonds overseas for working capital purposes will be permitted.

Companies, real estate investment trusts (REITs) and infrastructure investment trusts (InvITs) can raise overseas rupee bonds. These bonds must have a minimum maturity of five years.

Under the automatic route, companies can raise up to $750 million per annum. Cases beyond this limit will require prior approval, said the RBI.

Tax treatment for these bonds remains to be clarified by the government. On Tuesday, Business Standard reported that a 5% withholding tax would be applicable for such borrowings.

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