Chairman MS Verma said on Wednesday that the bank was planning to raise over $2 billion through the issue, the proceeds from which will be used to back infrastructure financing at a cheaper rate. "Although the offer will be open for 30 days, we can close it any time after 10 working days once the required amount is raised," he said.

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 bank's books as "other liabilities".

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

"The roadshow for the issue will begin on July 24. Since it will not be listed on stock exchanges, no registration is required for it. However, we need to notify it in different countries," Verma said. Without referring to the adverse impact of economic sanctions and the possible complications in raising resources in the US, the SBI chairman said: "Even if one country does not accept the notification, we will not be constrained by it. If there is problem in one centre, alternative arrangements can be worked out."

Verma said the bonds will enable the bank to lend at about 13 per cent for the infrastructure sector as the cost of five-year money will work out to around 9.2 per cent. In contrast, the term-lending institutions have been raising five-year funds at a cost of 13.5 per cent.

"We will insist on disbursing rupee funds. In case 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.

The Resurgent India Bonds will be eligible for investment by NRIs, overseas corporate bodies (OCBs) and banks acting in a fiduciary capacity on behalf of NRIs and OCBs. Both the principal amount as well as interest -- payable half yearly or on a maturity basis on maturity -- are repatriable for NRIs. The face value of the bond will be $2000 for dollar denominated instrument, (use the pound sterling sign) 1000 for sterling bonds and DM 3000 for deutsche mark bonds.

Premature encashment of the bond will be permitted in Indian currency after six months for the date of allotment without any penalty. The NRIs will be able to jointly hold the bond with resident Indians.

The instrument -- which could be gifted to resident Indians -- will be transferable between non-resident Indians and overseas corporate bodies. The bonds will be exempted from income, wealth and gift taxes. The tax benefits will beavailable to the donees as well as transferees.

SBI Capital Markets will be the lead arranger to the issue. Other nationalised banks with overseas presence like the Bank of Baroda and Bank of India will be roped in as arrangers and collecting bankers for marketing the issue. "We can even work out some resource sharing arrangment with them," Verma said.

Weak demand may scuttle objective

The attractive interest rates and insurance against currency depreciation should see the India Resurgent Bond issue through safely. State Bank of India says that the funds will be used to fund infrastructure. The trouble with infrastructure, however, is not so much a dearth of funds as a lack of demand for project finance, owing to projects not taking off. State Bank can easily manage to increase funding to infrastructure instead of putting its money in government bonds if the demand for infrastructure projects increases.

The cost of funds for State Bank will be 9.2 per cent, which is more than its average costof domestic funds. However, compared with five-year domestic deposits, the IRBs will be cheaper. It is a moot question, however, to what extent the bank will be able to deploy the proceeds from the issue in infrastructure.