On Friday the RBI has augmented FPI ceiling through masala bonds which are being increasingly used by corporates to raise foreign debt. Some of the recent masala bond issue are from public run enterprises that include NTPC and NHAI. For the Q3FY18 the ceiling has been increased by an additional Rs 27,000 crore while for the fourth quarter by Rs. 17000 crore. Rs. 9500 crore for both of the two quarters can be used for long term infrastructure projects.
Now masala bonds part of the FPI have now become the part of ECB which is regulated on a separate basis. These comprise current investments was well as few transactions that are in pipeline. The decision to increase the limit on FPI has come on the sidelines of rupee losing ground against the dollar which dropped to its six and a half month low value of around Rs. 65 and also the recent outflow of foreign investment from equity.
In July this year, the issuance of masala bonds had been stopped by the government and a circular had been notified by the SEBI that stated FPI limits in corporate bonds shall have to be allotted through a an auction once the limit of 95% of the overall quota is surpassed.
Recently, there has been calls of a masala bond issue by IREDA which is said to raise international money @ return of 6.9%-7%.