India speeds-up internationalization of the rupee

Will launch first offshore rupee bond program.

India will take a giant stride in its aim of internationalizing the rupee through a deal with the World Bank. The International Finance Corporation, the private sector lending arm of the WB, will boost the size of the offshore rupee market by selling US$1 billion of bonds to international investors.

The launch of the program shows that India is trying to find ways of attracting foreign capital after the rupee plunged this summer.

The offshore bond program will create a path for investors to buy a rupee asset with the World Bank’s triple-A credit rating with no risk of being unable to convert rupees back to dollars and without registering with the Indian authorities. This means offshore bonds can attract more capital to India.

IFC will sell the bonds in dollars, convert the proceeds to rupees and invest them in India. It will guarantee to make repayment in dollars but the size of the return will reflect rupee interest and exchange rates.

IFC chief executive Jin-Yong Cai said market volatility has created a sense of urgency about deepening the rupee capital market. He noted that India approved the deal in record time.

Cai said the IFC is also working on an onshore rupee bond, with a program that could reach US$5 billion over 10 years.