Kerala’s KIIFB faces FEMA probe over alleged misuse of Masala Bonds

A high-stakes financial scandal unfolds as Kerala officials confront accusations of diverting bond funds. Could this reshape how states borrow abroad?

, and Administrator

2025 December 2 . 1:17 PM

1 min read

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Kerala’s KIIFB faces FEMA probe over alleged misuse of Masala Bonds

The Kerala Infrastructure Investment Fund Board (KIIFB) is facing fresh scrutiny over its financial dealings. Authorities have issued formal notices to key officials, including the state’s chief minister, over suspected irregularities in foreign bonds. The case centres on rupee-denominated bonds, known as Masala Bonds, issued on international exchanges.

KIIFB raised ₹2,672.80 crore through these bonds to fund infrastructure projects. However, a complaint filed on June 27, 2025, under the Foreign Exchange Management Act (FEMA) alleged misuse of the funds. Investigators claim ₹466.91 crore was used for land purchases, which the Reserve Bank of India (RBI) explicitly prohibits under its 2015 regulations.

The case represents a major escalation in the ongoing probe into KIIFB’s bond practices. Officials now face formal allegations of violating RBI guidelines on foreign-funded land deals. The outcome of the adjudication could have broader implications for how state-backed entities manage overseas borrowings.