The financial services arm of Infrastructure Leasing & Financial Services (IL&FS) has borrowed US$30mn from two Mauritian banks, dubbed a “masala loan” because it is denominated in Indian rupee.

The lenders are AfrAsia Bank and SBM Bank, and the company becomes the first non-banking financial company to raise a masala loan from foreign banks. The funding will be on-lent to infrastructure companies and is priced at 8.7%, with a three-year tenor, on a bullet repayment structure.

By borrowing in local currency, IL&FS Financial Services minimises the risk of currency fluctuation, particularly in a year in which the US Federal Reserve is expected to raise interest rates on a number of occasions.

In September 2015, the Reserve Bank of India (RBI) allowed Indian companies to raise money through issuing rupee-denominated masala bonds outside of India. In the primary lending market, however, the trend is much more nascent.

The practice was only opened up to the lending markets in January 2016, and it wasn’t until November of that year that the first masala loan was originated: a US$50mn loan from Export Development Canada (EDC – the Canadian export credit agency). On that occasion, the borrower was the transport division of IL&FS.

Ramesh Bawa, the CEO of IL&FS Financial Services, says that the masala loan completely eliminates currency risk and also saves money on currency conversion. He says that the company plans to revisit the market for similar funding in the future.

“We are exploring the possibility of doing similar transactions for other group entities also. We are being approached by other foreign banks, too, so we think we will be able to do more such transactions. Liquidity is not a problem; but in these masala loans, all the overseas institutions are choosy. Unless they are comfortable with the background of the promoter, strength of the balance sheets they don’t work,” he told local media.