Indian Economy
NDB to Tap Indian Offshore Market
- 23 Aug 2019
- 2 min read
Recently, the New Development Bank (NDB) in its efforts to raise capital has announced to tap into the Indian rupee offshore market.
- NDB which recently has received its first ‘AAA’ rating, is looking into the Indian rupee offshore market to raise resources after the Masala bonds market slowed down.
- There has been a slowdown in Masala bond market due to the global slowdown and India's economic issues like IL&FS crisis.
- It is a significant move as this will strengthen gradual internationalization of the Indian Rupee.
- However, the offshore rupee market has its own issues.
- The exchange rate in the two markets i.e. home and offshore, could be different leading to arbitrage opportunities and inefficiencies.
- In fact, the price in one market could drive the price in another market.
- This reduces the efficacy of central bank’s monetary policy.
- That's why the government had recently formed a Task Force on Offshore Rupee Markets under former Deputy Governor of the RBI, Usha Thorat.
- The task force recommended expanding onshore currency markets, in a calibrated manner.
- This will enable foreign investors to hedge their currency risk and could incentivise greater participation in rupee-denominated bonds.
- Note:
- AAA is the safest of investment ratings, as there’s almost zero probability of defaulting on the loan.
- It is significant that NDB got a higher rating than the BRICS countries.
- Also, no other bank owned by emerging markets has a AAA rating.
