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RBI issued Draft Framework on Issuance of Rupee linked Bonds Overseas

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The Reserve Bank of India proposed a framework to be put in place for issuance of rupee inked bonds overseas by the Indian corporates and international financial institutions which are eligible to raise external commercial borrowings (ECB).

A. Indian Corporates:

  • Indian corporates eligible to raise ECB are permitted to issue Rupee linked bonds overseas. The corporates which, at present, are permitted to access ECB under the approval route will require prior permission of the Reserve Bank to issue such bonds and those coming under the automatic route can do so without prior permission of the Reserve Bank.
  • The bonds may be floated in any jurisdiction that is Financial Action Task Force (FATF) compliant.
  • The subscription, coupon payments and redemption may be settled in foreign currency. The proceeds of the bonds can be parked as per the extant provisions on parking of ECB proceeds.
  • Amount and average maturity period of such bonds should be as per the extant ECB guidelines. The call and put option, if any, shall not be exercisable prior to completion of applicable minimum average maturity period.
  • The coupon on the bonds should not be more than 500 basis points above the sovereign yield of the Government of India security of corresponding maturity as per the FIMMDA yield curve prevailing on the date of issue.
  • End use restrictions will be as applicable under the extant ECB guidelines.
  • For USD-INR conversion, the Reserve Bank’s reference rate on date of issue will be applicable.

B. International Financial Institutions:

  • International Financial Institutions of which India is a shareholding member intending to deploy the entire proceeds of the issuance in India shall not require prior permission for the issuance of Rupee bonds overseas irrespective of amount of issuance.
  • In other cases, where an International Financial Institution (of which India is a member) wishes to retain the freedom to deploy the issue proceeds in any member country shall require prior permission from the Reserve Bank / Government of India.

C. Hedging:

  • Any investor in these bonds will be eligible to hedge both the foreign currency risk as well as credit risk through permitted derivative products in the domestic market.
  • Banks incorporated in India will not have access to these bonds in any manner whatsoever.