In a parallel development, banks have been drawing up contingency plans to combat any possible flight of FCNR(B) deposits. The global rating agency Moody's downgrade of India rating by two notches is likely to adversely impact the corpus of FCNR(B) deposits, senior bankers said. Led by SBI, a majority of the state-run banks have already jacked up the interest rates on FCNR(B) deposits. The finance ministry is, however, not perturbed over the $900-million dip in forex reserves in the week ended June 12. "The corpus of foreign currency assets was pegged at $24.35 million on June 12, higher than the December 1997 level when the first phase of the south-east Asian currency crisis hitIndia. The fundamentals of the Indian economy are strong enough to withstand any crisis," sources said.

The government has fixed a target of $2 billion to be raised through the issuance of Resurgent India bonds. "It will be an extension of the FCNR(B) deposits. The bonds will not be listed in stock market and there will be no secondary market trading. The instrument will, however, be transferable through endorsement of the State Bank," the finance ministry source said.

The centre will bear the exchange risk on these bonds through the Reserve Bank of India (RBI).

"It may not be necessary to spend a huge amount to bear the exchange risk as a substantial chunk of the bond will be rolled over in the form of FCNR(B) deposits. The non-resident Indians (NRIs) may not be too willing to redeem the entire corpus of the RIB as their global income is subject to tax in advanced countries," sources said.

The SBI will rope in other domestic banks having global presence -- like Bank of India and Bank of Baroda -- inselling the bond at an `attractive' coupon rate. The roadshows will exclude the US, keeping in view the economic sanctions clamped on India by the Clinton administration.

The RIB will be denominated in three currencies -- US dollar, pound sterling and Deutsche Mark.