RBI to Allow Indian Companies to Issue Rupee Bonds Overseas

Mumbai: Indian companies will be allowed to issue local currency bonds overseas for the first time as the nation’s central bank seeks to expand the market for rupee-denominated debt.

The Reserve Bank of India, which left interest rates unchanged at 7.5 per cent on Tuesday, said the rupee bonds issued abroad by a few international institutions were “received with interest.” The RBI didn’t say when it will finalise rules for local companies to issue rupee bonds offshore.

“This opens the possibility for Indian companies to issue rupee bonds abroad,” RBI Governor Raghuram Rajan said. The RBI said in its review that appetite for rupee debt from international investors was a “welcome development” and that issues of local-currency securities overseas will be classified as external commercial borrowings.

India is seeking to broaden local companies’ funding sources and diversify their investor base as Prime Minister Narendra Modi’s administration strives for double digit gross domestic product growth. Asia’s third-largest economy is forecast to have expanded 7.4 per cent year-on-year in the fiscal period that ended March 31.

“Due to several restrictions, many smaller investors internationally wouldn’t have registered as foreign portfolio investors in India,” said R. Sivakumar, the head of fixed income at Axis Asset Management Co. “So, certainly, allowing Indian corporates to issue rupee bonds abroad will open up a larger market.”

International Finance Corp. last year unveiled plans to raise as much as $2.5 billion equivalent via rupee bonds over the next five years to fund infrastructure projects in India, the Washington-based financing unit of the World Bank said in an Aug. 20 statement.

The Asian Development Bank also plans to sell rupee- denominated debt, a person familiar with the matter said last August.