The banks are engaged in race discrimination and violated the US constitution by refusing to sell Resurgent India Bonds (RIB) to the suit's plaintiff Leonard Schoenfeld and other non-Indians, the lawsuit said.

The triple-currency, five-year instrument closed on Monday after mopping over $3.5 billion from non-resident Indians and overseas corporate bodies the world over.

"I don't see any problem...we notified the bond to the Securities & Exchange Council and State Department of Banking in New York well in advance," SBI Caps managing director AR Barwe told The Financial Express. SBI Caps is the merchant banker to the issue.

According to Barwe, the RIB is not the only product sold in the US which is not available to non-Indians. "Even the FCNR(B) accounts are meant only for NRIs. The suit may not be able to withstand the scrutiny of law," he said. A senior Bank of India official said BoI is merely a collecting bank and it has not devised the instrument, "We are collecting the applications. We have not framed the stipulations...The bond is floated by the State Bank," the official said.

Incidentally, the third bank which has been selling the bond in the US -- Citibank -- is not named in the suit.

According to a legal expert in the banking industry, the allegation of discrimination may not hold good in the court of law as NRIs and non-Indians are two distinct classes. "RIB is a special scheme offered to NRIs. There is no discrimination as NRIs are a different class from that of non-Indians," he said.

Dan Engstrand of Doniger $ Engstrand, which filed the suit, reportedly said the State Bank's New York offices asked prospective investors if they are of Indian descent. The bank turned away non-Indians. The suit seeks class action status to represent all non-Indians who could not buy the bonds.