Understanding Bonds Issued Outside India for Indian Companies

The question asks about a specific type of bond issued in global capital markets, outside of India, by international financial institutions. These bonds are used to raise money specifically for lending to Indian companies. This mechanism allows Indian companies to access foreign capital markets for funding.

Identifying the Specific Bond Type

Let's analyze the characteristic features of the bond described:

• Issued in global capital markets, outside India.
• Issuer is often an international financial institution (though Indian entities can also issue them).
• Purpose is to raise money to lend to Indian companies.

These features strongly point towards a specific type of bond that gained prominence for allowing Indian entities to borrow abroad while mitigating currency risk by denominating the bond in Indian Rupees (INR). While the question mentions international financial institutions as issuers, Indian corporations and government bodies also issue these bonds directly.

Analyzing the Options

Let's look at the given options:

1. Chandi
2. Mithai
3. Masala
4. Papad

These are colloquial names for different concepts or instruments. We need to identify which one corresponds to the bond type described.

• Chandi: This term generally relates to silver. It is not associated with a type of international bond for Indian companies.
• Mithai: This term refers to sweets. It has no connection to financial instruments.
• Masala: This term refers to spices. In the financial context, 'Masala Bonds' are indeed bonds issued outside India but denominated in Indian Rupees (INR), rather than the local foreign currency. This helps Indian borrowers avoid currency risk as they repay in INR. International financial institutions or Indian entities issue them to raise funds from foreign investors which can then be lent to Indian entities or used by the issuing Indian entity.
• Papad: This term refers to a thin, crispy disc-shaped food. It is not related to financial instruments.

Why Masala Bonds Fit the Description

Masala Bonds are debt instruments issued outside India by Indian corporations or institutions (like the Housing Development Finance Corporation - HDFC being the first) or international financial institutions like the International Finance Corporation (IFC). They are denominated in Indian Rupees (INR), not in a foreign currency. This denomination in INR differentiates them and shifts the currency risk from the Indian borrower to the foreign investor.

The funds raised through Masala Bonds can be used by Indian companies for various purposes, such as infrastructure development or other capital expenditures, subject to regulatory guidelines.

Conclusion

Based on the description of bonds issued in global capital markets outside India by international financial institutions to raise money and lend to Indian companies, the term that specifically identifies this type of bond is 'Masala Bonds'.

The correct option is Masala.

Revision Table: Key Bond Types

Additional Information on Masala Bonds

Masala Bonds were conceptualized to allow Indian companies to raise funds from overseas investors in Indian Rupees. This protects the Indian borrower from the volatility of the exchange rate between the Rupee and the foreign currency in which the bond might otherwise be denominated. For instance, if an Indian company borrowed in US Dollars, and the Rupee depreciated against the Dollar, the cost of repaying the loan in Rupee terms would increase significantly. By issuing Masala Bonds, this risk is transferred to the investor who is repaid in Rupees.

The eligibility criteria for issuing and investing in Masala Bonds are regulated by the Reserve Bank of India (RBI). There are guidelines regarding the minimum maturity period and the usage of the funds raised.