India: Rupee Denominated Bonds: Two Steps Backward!

  • ECB framework for rupee denominated bonds amended;
  • All-in-costs ceiling amended from 'prevailing market conditions' to 'G-Sec yield + 300 bps'
  • Related parties not permitted to fund RDBs


The Reserve Bank of India ("RBI"), in 2015, introduced rupee denominated bonds ("RDB") (also known as 'masala bonds') as instruments through which funds can be raised by Indian corporates.1 RDBs were notified as a form of fund raising under the extant external commercial borrowing ("ECB") route. Like any other fund raising under the ECB route, the RDB were subject to certain conditions, including eligible borrowers, eligible lenders, minimum maturity, all-in-costs ceilings, etc.. In order to further encourage usage of RDBs, corporates have been provided leeway against a number of requirements under the Companies Act, 2013.

The RBI has, on June 7, 2017, issued a circular ("June Circular") amending the ECB framework, with respect to certain conditions applicable to RDB.2 The RBI press release in this regard states that the changes have been included with "a view to harmonising the various parameters of the extant framework with ECB guidelines".3 We have detailed the changes and analyzed the same below.


  1. Minimum maturity: Under the ECB framework, offshore raising of funds are to comply with a minimum maturity period, the calculation for which is provided under the ECB framework.
Existing position (prior to June Circular) Revised position (pursuant to June Circular)
RDBs to have minimum maturity of 3 (three) years RDB to have minimum maturity as follows:
  • For RDB up to the INR equivalent of USD 50 million – 3 years;
  • For RDB for an amount above the INR equivalent of USD 50 million – 5 years;

The minimum maturity for RDB was originally 5 (five) years. This was later amended to 3 (three) years in April 2016.4 The 2016 change was incorporated to align the minimum maturity requirement with the minimum residual maturity requirement of non-convertible debentures issued by Indian corporates.

However, the RBI has now decided to align the minimum maturity with ECB requirements. Currently, ECB can be raised under 3 tracks (other than through RDBs) and the maturity for such ECB (being medium term ECB or rupee denominated ECB) is 3 years (where amount raised is up to USD 50 million (or its Rupee equivalent)) or 5 years (where the amount raised is greater than USD 50 million (or its Rupee equivalent)).

While it is likely that RBI would look at each issuance / allotment of RBI individually, it is not clear whether corporates can issue multiple series of RDBs at a single instance / in tranches to get away with a higher minimum maturity requirement.

  1. All-in-cost ceiling: Under the ECB framework, there is a cap, termed as 'all-in-cost ceiling', on the amount that can be paid by the Indian borrower for servicing the loan. The all-in-cost ceiling includes interest, other fees, expenses, charges, guarantee fees, but excludes commitment fees, pre-payment fees / charges and withholding tax payable.
Existing position (prior to June Circular) Revised position (pursuant to June Circular)
All-in-costs ceiling for RDBs to be 'commensurate with prevailing market conditions'. All-in-costs ceiling to be 300 basis points over the prevailing yield for government securities for corresponding maturity period.

Currently, the coupon on government security ranges from 6.5% (for 3 years) to 6.75% (for 10 years). Accordingly, the all-in-cost ceiling for RDBs has now been fixed at 9.5% (3 year maturity RDB) to 9.75% (10 year maturity RDB). RDBs were issued earlier with all-in-cost ceilings which were commensurate with market conditions. Although this was ambiguous and confusing, it was seen that RBI was comfortable with a rate at par with lending rates of banks.

While, all public issuances of RDBs would have anyway adhered to the new limits set herein 5, issuance of RDBs through private placement (generally to offshore shareholders) were above the limits specified herein, and were in the range of 10% - 12% p.a.. The low cost ceiling, coupled with hedging costs (which ranges from around 4% - 6%) could make RDBs even more unattractive for foreign investors.

While it seems that the all-in-costs ceiling would be applicable at the time of the issuance only, the June Circular does not clarify if the coupon on the RDB can be a floating rate, linked to the prevailing government securities.

  1. Recognised lenders: The ECB framework prescribes entities which can be lenders under the ECB framework. These lenders vary depending on the form of ECB being raised. In the case of RDBs, the requirements have been clarified in the ECB framework.6
Existing position (prior to June Circular) Revised position (pursuant to June Circular)
No such provision Parties classified as 'Related party' under the Indian Accounting Standards cannot subscribe or invest in or purchase RDBs

Related party has been defined very broadly under the relevant Indian Accounting Standard7. As such, parent entities/ holding companies/ majority shareholders/ sister concerns would all be prohibited from investing in / subscribing to RDBs. This would be a major concern, since a large number of RDB issuances (through the private placement route) were captive issuance, i.e. issuance where the parent entity used this route to fund the Indian corporate.

The introduction of the restriction for related parties to invest in / subscribe the RDBs seems to be disconnected with the entire purpose of the June Circular, to align the same with the other ECB tracks. The other ECB tracks permit foreign equity holders to lend to Indian corporates. This change blocks this avenue for Indian companies to raise funding.

The intent for the change seems to be to prevent cash extraction from Indian companies. If any offshore parent raises funds offshore and decides to invest in India through RDBs, the difference between the borrowing costs and returns from India (despite the hedging costs to be incurred) could convince offshore parents to use this route. This is difficult in other ECB tracks, since the all-in-cost ceiling in all other tracks is much lower in the other tracks, thereby making this unviable (when coupled with the hedging costs).


The June Circular is silent on this, but it seems that the changes introduced would only apply prospectively, and not retrospectively. Even applied prospectively, the changes seem to be quite regressive at a time where the government is trying to encourage the use of RDBs by various measures, including providing it relaxation from certain requirements of the Companies Act, 2013.

While the intent of the changes introduced by the June Circular may be to only further public issuance of RDBs, the changes would serve as a major dampener for the RDB route in the larger scheme of things.


1 External Commercial Borrowings (ECB) Policy - Issuance of Rupee denominated bonds overseas, A.P. (DIR Series) Circular No.17, available online at
2 Issuance of Rupee denominated bonds overseas, A. P. (DIR Series) Circular No.47, available online at
3 Statement on Developmental and Regulatory Policies, Reserve Bank of India, dated June 7, 2017 available online at
4 A.P. (DIR Series) Circular No.60 available online at
5 HDFC, Adani and NTPC are some of the borrowers who have raised funds by issuance of RDBs.
6 RDB could be issued in and be subscribed only by a resident of a country that: (i) is a member of Financial Action Task Force ("FATF") or a member of a FATF-Style Regional Body; and (ii) whose securities market regulator is a signatory to the International Organization of Securities Commission's (IOSCO's) Multilateral Memorandum of Understanding (Appendix A Signatories) or a signatory to bilateral Memorandum of Understanding with the Securities and Exchange Board of India (SEBI) for information sharing arrangements; and (iii) should not be a country identified in the public statement of the FATF as: a. A jurisdiction having a strategic Anti-Money Laundering or Combating the Financing of Terrorism deficiencies to which counter measures apply; or b. A jurisdiction that has not made sufficient progress in addressing the deficiencies or has not committed to an action plan developed with the Financial Action Task Force to address the deficiencies.
7 IndAS 24 (Related Party Disclosures)

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Ruchir Sinha
In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.