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This is an archive article published on July 9, 1998

Resurgent India Bonds to come out next month

MUMBAI, July 8: State Bank of India (SBI) will launch the 5-year foreign currency denominated `Resurgent India Bonds' (RIBs) on August 5 to ...

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MUMBAI, July 8: State Bank of India (SBI) will launch the 5-year foreign currency denominated `Resurgent India Bonds’ (RIBs) on August 5 to mobilise over $ 2 billion (around Rs 8,400 crore) from the non-resident Indians (NRIs).

The bonds would carry an interest of 7.75 per cent per annum for bonds denominated in dollars, 8 per cent for pound sterling and 6.25 per cent for bonds denominated in German mark.

The finance minster, Yashwant Sinha, had announced in his Budget speech that the bonds, targetted at the NRIs, would raise funds for infrastructure development. The RIB issue is expected to boost the foreign exchange reserves and channelise part of the unaccounted black money into the country’s banking system.

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Addressing a news conference here today, SBI chairman, M S Verma said the investor will have the option of receiving the interest half yearly or on a cumulative basis on maturity in the same currency.

RIBs could be held by the NRIs jointly with resident Indians. They could be gifted to residentIndians and will also be transferable between the NRIs and OCBs. The interest income on the bonds would be free from Indian income tax, wealth tax and gift tax.

The tax benefits would be available to the donees and transferees as well.

The bank is expecting to raise over $ 2 billion from the bonds and claims that, as per the feedback received from the pre-marketing survey, the issue will receive good response. “We may not be able to keep the bonds issue open for the entire 30 days as we expect good response in the first 10 days itself,” Verma said.

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The minimum investments in the bonds would be $ 2,000 and in multiples of $ 1,000. Similarly, in the British and German currency, the minimum investment would be — 1,000 and DM 1,000 respectively.

The Centre will charge the bank a "nominal" guarantee fee to bear the exchange risk for the foreign currency bond which will be shown in the SBI books as "other liabilities".

"State Bank will not incur any loss on account of depreciation of the rupee. Whilethe centre will bear the exchange risk, the guarantee cover will be shared equally between the bank and the borrower. The cost of the guarantee will be factored into while fixing the lending rates for infrastructure projects," Verma clarified.

According to the SBI chairman, the bond will enable the bank disburse cheaper funds for the infrastructure sector. "We will insist on disbursing rupee funds. In case the corporates want the forex fund they will have to bear the exchange risk. The major portion of the bond proceeds will be brought to India to be disbursed in Indian currency," he said.

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Verma said the banks would be permitted to grant loans against the collateral of the RIBs at their discretion and commercial judgement and the investors will also be permitted to prematurely encash the RIBs in Indian currency without any penalty after six months from the date of allotment.

RIBs would be eligible for investment by NRI,s Overseas corporate bodies, minors and banks acting in a fiduciary capacity onbehalf of NRIs/OCBs.

The road shows for marketing the bond issue at important NRI centres in India and abroad are scheduled to commence soon. SBI also proposes to involve other interested banks as arrangers and as collecting bankers for marketing the RIBs to investors worldwide, in order to provide them with an opportunity to participate, the chairman said.

“The launch of Bond would meet our three main objectives. First, we would be raising funds for financing the crucial infrastructure projects; second the cost of funds would be low, finally, funds would be readily available for core sector projects,” Verma said.

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Given the large requirement of funds for this purpose, it is necessary to tap both national as well as international resources. The NRI community constitutes a very large and important resource and SBI proposes to channelise their investible funds into building the basic infrastructure of the country, SBI said.

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