Source: The Hindu, Live Mint and Indian Express
WORLD BANK’S LOAN TO KERALA
Context: Extending support to the government’s comprehensive flood recovery efforts and to build greater resilience to future shocks, the World Bank on Wednesday agreed to provide development policy loan of $250 million as the first tranche for the Rebuild Kerala Initiative.
Essentials
- The World Bank is a bank for nations, not people.
- The World Bank has two separate groups.
- One group, the International Development Association, provides loans to the world’s poorest countries.
- The other group, the International Bank for Reconstruction and Development, gives loans to developing countries.
Some other schemes being implemented with the help of World Bank
- SANKALP: It has a $250 million loan assistance from the World Bank to the Government of India to boost the National Skill Development Mission.
- The programme provides specific incentives to the States to help skill disadvantaged populations through innovative models, with focus on women and persons with disability.
- STRIVE: It is a $425 million Central scheme, with half of the outlay as World Bank loan assistance — incentivises ITIs to improve their performance by involving small and medium firms, business associations and industry clusters.
MASALA BONDS
Context: Repayment of the Kerala Infrastructure Investment Fund Board’s (KIIFB) rupee-denominated Masala Bonds by 2030 will not be an issue despite the financial crisis looming the State, Finance Minister T. M. Thomas Isaac has said.
Essentials
What Is a Bond?
- A bond is a fixed income instrument that represents a loan made by an investor to a borrower.
- A bond has an end date when the principal of the loan is due to be paid to the bond owner and usually includes the terms for variable or fixed interest payments that will be made by the borrower.
- Bonds are used by companies, municipalities, states, and sovereign governments to finance projects and operations.
What are Rupee Denominated Bonds or Masala Bonds?
- A rupee denominated bond is a bond issued by an Indian entity in foreign markets and the interest payments and principal reimbursements are denominated (expressed) in rupees.
- The peculiarity of rupee denominated bond is that buying of bonds, interest payments and repayment all are expressed in rupees.
- All payments are converted into corresponding dollar values at the time of payment.
- The term ‘Masala Bond’ is also used to describe ‘rupee denominated’ ever since the first issuer of rupee-denominated bonds used the name Masala Bonds in its first issue.
- RBI in its August 2016 regulations also used this name.
- One of the objectives to issue Masala Bonds is to internationalise the Indian currency, others being to fund infrastructure projects in India and to fuel internal growth through borrowings.
Conventional foreign currency denominated bonds Vs. Masala Bonds
- In the case of a traditional foreign currency bond issued by an Indian entity, the exchange rate risk is with the Indian issuer. In case of Masala Bonds, the risk should be borne by the foreign investor.
Why the Masala Bonds are attractive for foreign investors?
- For the foreign investor, the rupee denominated bonds is attractive as it will give him higher interest rate compared to the standard interest rate prevailing in their markets.
- On an average, the rupee denominated bonds have an interest rate of 2 to 3 % higher compared to the standard LIBOR (London Interbank Offer Rate).
- An additional benefit of rupee denominated bonds is that it will encourage foreign buyers to deal more in rupees (and products that help them to reduce exchange rate risks). Hence, internationalization of rupee can be promoted by rupee denominated bonds.
RBI norms for Masala Bonds
- The International Finance Corporation (IFC) – a World Bank affiliate is the first major issuer of rupee denominated bonds in the name tag of ‘Masala Bonds’.
- Later, in September 2015, the RBI came out with detailed regulatory guidelines for the issue of rupee denominated bonds.
- As per the RBI’s regulation on Masala Bonds, the money can be used only for infrastructure financing purposes.
- In August 2016, the RBI allowed banks to issue Masala Bonds to procure money to meet their capital needs and to collect fund to finance infrastructure projects.
- The overall guidelines for rupee denominated bonds will be same as that for External Commercial Borrowings.
- Masala Bonds should have a minimum maturity of five years, and there is a $750 million per year limit for borrowers which can be exceeded with the RBI approval.
Who can invest in Masala Bonds?
- Foreign investors who want to take exposure to Indian assets and are constrained from doing it directly in the Indian market or prefer to do so from their offshore locations can invest in Masala Bonds.
- The subscriber of these bonds can sell rupee bonds to a third party (domestic or offshore) but the proceeds from the issue can’t be used for real estate activities or capital market investment.
- However, the proceeds from these bonds can be utilised for development of integrated township/affordable housing project or any other infrastructural development project.
How Masala Bonds came into existence?
- The concept of Masala Bonds was introduced nearly 6-7 years ago by the government and International Finance Corporation (IFC) to stem the record fall in rupee due to capital flight spurred by a severe current account deficit and the tapering of quantitative easing by the US Federal Reserve.
INDIA REMOVED FROM CURRENCY MONITORING LIST
Context: The U.S. removed India from its currency monitoring list of major trading partners, citing steps being taken by New Delhi that addressed some of the US administration’s major concerns. Switzerland is the other nation that was removed from the list.
Essentials
- “India has been removed from the monitoring list in this report, having met only one out of three criteria — a significant bilateral surplus with the United States — for two consecutive reports,” the US Treasury Department said in its report on macroeconomic policies.
- India for the first time was placed by the US in its currency monitoring list of countries with potentially questionable foreign exchange policies in May 2018 along with five other countries – China, Germany, Japan, South Korea and Switzerland.
WHO DROPS BEING TRANSGENDER FROM LIST OF MENTAL DISORDERS
Context: The World Health Organization (WHO) will no longer categorise being transgender as a “mental disorder”.
Essentials
- According to the newly-revised version of the International Classification of Diseases (known as ICD-11), published by the WHO, “gender identity disorders” have been reframed as “gender incongruence.”
- Gender nonconformity is now included in a chapter on sexual health, rather than being listed with “mental disorders” as was the case previously.
