The bank, which had earlier put in a proposal to offer 7.5 per cent on the five-year instrument, is likely to revise the offer to 7.75 per cent now.The instrument has already obtained clearance from the Central Board of Direct Taxes (CBDT) and the centre is likely to notify it by the end of this week. The roadshows for the RIB, expected to mop up over $2 billion from non-resident Indians, are likely to commence in the first week of July, sources handling the issue said.

The Reserve Bank of India has turned down the applications of the Bank of Baroda and the Bank of India to act as co-lead managers to the issue along with the SBI. However, these two banks, along with others which have an internationalpresence, will help the State Bank sell the issue for a commission. Sources said that the decision to hike the interest rate on the bond issue is being taken after receiving feedback from the State Bank's overseas branches.

"We got the feedback that 7.50 per cent is a reasonably attractive rate, but we do not want to take any chances, particularly after the downgrade. Hence, we are thinking of raising the coupon by 25 basis points to 7.75 per cent," a source handling the issue said.

Analysts agree that the combined effect of the US sanctions and the Moody's downgrade would have made it tough to elicit a good investor response to the issue without a coupon hike. They point out that all banks have already raised interest rates on the foreign currency non-residents (banks) scheme to woo NRI depositors.

Following the CBDT clearance, the RIB will offer the same tax breaks that the FCNR(B) accountholder enjoys. A bondholder will be exempt from income, wealth and gift tax.

Sources hinted that a large numberof arrangers are likely to be appointed to handle the issue. "In the India Developement Bond scheme, introduced in the early 1990s, around 150 arrangers were appointed. This can be the case with the RIB also," sources said.

The bond will have a five-year tenure and the centre will bear the exchange risk of the bonds through the Reserve Bank. The principal and interest earned on the instrument will be fully repatriable. The RIB will be denominated in three currencies - US dollar, pound sterling and Deutsche mark.