SBI's Millennium Deposit bars US-based NRIs

SBI's Millennium Deposit bars US-based NRIs
ENS ECONOMIC BUREAU

MUMBAI, OCT 9: India’s largest commercial bank, the State Bank of India (SBI), will not be issuing its India Millennium Deposit (IMD) scheme to the non-resident Indians (NRIs) living in the Unites States. The foreign currency issue, targeted to raise $ 2 billion (around Rs 9,200 crore) from the NRIs, would be launched on October 21 and carry an annual interest rate of 8.5 per cent for dollar deposits, 7.85 per cent for pound sterling deposits and 6.85 per cent for Euro denominated deposits.

Addressing a news conference here today, the SBI Chairman, G G Vaidya said in a prepared legal text ``the SBI has been advised by its US consul that regulatory matters for implementing the IMD programme in the US require considerably longer than the time frame in which the IMD programme is proposed to be implemented. Accordingly, the IMD programme will not be implemented in the US.''

With this, the SBI expects 40 to 45 per cent of the proceeds of the 5-year tenure issue to flow in from the middle-east as the scheme would not be available in the US. NRIs living in the US had contributed 14 per cent of $ 4.2 billion Resurgent India Bond (RIB) launched in 1998. ``The SBI will not accept deposits remitted from the US in any form,'' Vaidya made it clear during the conference.

SBI Chairman said the bank would incur an all-in cost of 10 per cent per annum which would be invested in government bonds which gives an annual yield of 10.85 per cent and in core sector projects. The all-in cost comprises 8.5 per cent coupon rate, 0.5 per cent issue expenses per annum and one per cent exchange rate risk. The government of India will bear the rest of the exchange rate.

The deposit scheme is in the nature of certificates of deposit which is transferable by endorsement and delivery. Interest income on the IMDs will be free from Indian income tax and wealth tax laws. These certificates can be gifted to resident Indian and will also be transferable between NRIs/OCBs and banks acting in fiduciary capacity on behalf of NRIs/OCBs. The tax benefits will be available to the donees/nominees and transferees also.

While forex rupee loans against the collateral of the IMDs will be available, the depositors will also be permitted to prematurely encash the IMDs in Indian currency without and penalty after 6 months from the date of deposit. About 40 per cent of the proceeds would be invested in government securities as SLR, which is mandatory as per Indian laws, while another 15 per cent will be parked with various banks, which has participated in the issue at an interest rate of 10 per cent per annum. The rest of the fund will be invested in financial institutions funding infrastructure projects and government treasury bills, Vaidya said.

The cost of the IMD when compared to the Resurgent India Bonds issue, which raised $4.2 billion in 1998, was competitive as the interest rates globally had moved up, he explained.

Vaidya pointed out that RIB was procured at 7.75 per cent (2.25 per cent above the then prevailing six month Libor) while the IMD fund raising cost amounts to 8.50 per cent (1.75 per cent above the current six month Libor).

He said the IMD, which had been designed after assessing the NRI appetite for long term instruments, was solely to fund infrastructure projects in the country and not to support government borrowing programme. ``We have been repeatedly approached by the NRIs to offer a long term deposit product.... this scheme is a result of that,'' Vaidya said.

The deposit scheme would be open for 30 days but could be closed on any date prior to the last date as per the discretion of SBI... However, this closure will not be earlier than 10 working days from the date of opening of the programme,'' he said. The road shows are expected to commence from next week onwards,'' he added.

The SBI plans to involve other interested banks as collecting bankers and/or arrangers for the IMDs in order to provide them with an opportunity to participate in the mega issue.