What are masala bonds? What are the advantages of issuing masala bonds? How do they differ from normal bonds?

Masala Bonds are rupee denominated borrowings by Indian companies in the overseas markets. This is different from other overseas borrowings, in the sense that in the other borrowings, the currency is normally dollar, euro, yen etc., whereas Masala Bonds are Rupee denominated. The advantage of issuing masala bonds is that the company does not have to worry about the depreciation in the rupee in comparison to the other bonds/ instruments that are denominated in foreign currencies. This is normally a big worry for corporates while raising money in the overseas markets. If the rupee weakens at the time of the redemption of the bonds, the company will have to pay more rupees to repay the dollars. Many companies which had raised funds via the Foreign Currency Convertible Bonds in 2007 found themselves in a great difficulty, as the rupee had depreciated very sharply during the global financial crisis. In order to compensate the risk of currency depreciation, the buyer of the Masala Bond will get a higher coupon rate and therefore earns a higher yield. The masala bonds were reckoned under both corporate debt and external commercial borrowings for Foreign Portfolio investment. The Reserve Bank of India recently amended the Regulations and currently treats Masala Bonds under the ECB category only, where a borrower just needs to seek the RBI's approval to sell those securities. Normal Bonds vis-s-vis Masala Bonds: As against Normal Bonds, Masala Bonds are considered a safer way of raising funds from international investors by Indian Corporates as they are rupee denominated bonds. Whereas the investor gets the benefit of a slightly high rate of interest as against normal bonds, issuer enjoys safety in terms of decrement in the rupee value against foreign currencies.