IDBI officials have accused ICICI of having issued the letter. "It is amazing how an institution like this could stoop to such low levels," said an IDBI official who wished not to be quoted. Another official at the term lending institution said that the letter could only have been issued by a "well-wisher". ICICI, on its part, has categorically denied having issued any such letter. "Why would we do such a thing when our issue closed on the day the IDBI issue opened," asked a spokesperson for ICICI. The letter, titled "Safety Bonds --Strike The Right Chord," speaks of the benefits accruing to the retail investor if he invests in ICICI bonds. "The idea, clearly, is to mislead the retail investor who is not very well informed," said the IDBI official. The letter states: "Investors tend to prefer shorter maturity bonds, which give more regular interest payments and have lower entry barriers. Both issuers offer Regular Income Bond, but ICICI offers five-year bonds whereas IDBI bonds are of seven-year tenure; IDBI does not offer monthly interest option and one needs to invest a minimum of Rs 20,000 in IDBI quarterly interest option compared with Rs 15,000 in case of ICICI monthly income."

IDBI has clarified that investors still have the option of exiting after five years and that payment of interest, if paid on a monthly basis, would not amount to much. A quarterly payment of interest would amount to Rs 650 on the minimum investment, according to the IDBI official. The returns paid by both ICICI and IDBI are also comparable, headded.

Under the tax-saving bonds, the ICICI bond, according to the letter, offering a tax rebate under Sec 88 has a maturity of three years and three months. Investors can sell the bond after three years, thereby meeting the requirement of minimum lock-in period of three years for Sec 88 benefits. At the same time, tax on income from bond would be payable at a lower rate of 20 per cent as the difference between sales consideration and purchase price is treated as capital gains tax and not interest income. The IDBI infrastructure bond has a cumulative option offering Sec 88 benefit but the tenure is just three years. The investor cannot get the full benefit of the structure and avail the Sec 88 benefit at the same time.

The letter goes on to say that while both the ICICI and IDBI bonds are listed on the Bombay Stock Exchange and the National Stock Exchange, ICICI gives buy and sell quotes for its bonds on the NSE to enable investors to exit out of their bonds at market-related prices, in case they needto. Although IDBI bonds are also listed, IDBI does not offer two-way quotes and hence, trading is infrequent and investors may not be able to exit at fair prices at all times.

"The premise of this letter is that the other issuer is more investor friendly," the IDBI official said. "However, they have failed to inform the investor that the bond issue is in the nature of subordinate debt. Ideally, subordinate debt offers a higher coupon rate than senior debt, which has not been the case with the ICICI issue. The IDBI issue is in the nature of senior debt," said the official. ICICI officials have called attention to page 3 of the prospectus which clearly states that certain bonds under the issue are in the nature of subordinated debt. With banks already having taken informal decisions not to invest in the bond issues of financial institutions, accessing the market for funds is expected to become increasingly difficult for the institutions.