The State Bank of India, the proxi issuer of Resurgent India Bond for the Indian government, will allow other banks to swap the bond proceeds with Indian currency, provided they collect at least $10 million.

Some banks will not be too unhappy to see a reduction in their FCNR(B) portfolio as they are not able to deploy them profitably due to the high forward cost and the reluctance on the part of corporates to take dollar-denominated loans. This has forced them to deploy their FCNR(B) funds in overseas market which earn them only a marginally higher interest rate on what they pay to the depositors.

Some banks are also raising their interest rate on deposits in certain currencies like pound sterling which is mostly of the three-year maturityprofile -- the longest maturity permitted under FCNR(B) deposits. Bank of India announced a 50 basis points rise in pound sterling deposits on Thursday.

"While common sense says that FCNR(B) deposit holders should shift to RIB because of the high interest rates, one has to wait and see the number of accounts that will change hands because of the limited period to which the offer is open," a banker said.

For banks like Bank of Baroda, which has active treasury operations, any fall in their FCNR(B) deposit base affects their maneovrability in the market place. With the initiation into capital account convertibility, foreign exchange resources have become crucial for domestic banks in their treasury as well as lending operations. FCNR(B) deposits, where banks hold the deposits in foreign exchange, is their chief forex source for the purpose of treasury as well as forex lending operations.

Banks were expecting a steady growth of about 20 per cent in NRI deposits under the major heads of FCNR(B) and NREschemes this year also, which is threatened now.

In March 1997, there was an incremental increase of $1.8 billion through FCNR(B) deposits, while it was around $1.3 billion through the NRE schemes.

According to bank officials, there was a dip in the flow of NRI deposits when a similar drive to tap NRI funds was started in 1992 with the launch of the India Development Fund. The bank with the largest FCNR deposit base is State Bank of India, with deposits estimated at around $2 billion, followed by other public sector banks like Bank of Baroda and Bank of India. Some private sector banks like IndusInd Bank also has a relatively large FCNR(B) deposits base.

As on March 1997, all the Indian banks put together had cumulative NRI deposits worth $20.5 billion, with incremental deposits to the tune of $3.4 billion. These are accounted for by FCNR(A), FCNR(B), NR(E)RA and NR(NR)D schemes, with the largest chunk coming from FCNR(B) scheme at $7 billion.