It is finally here. The much-awaited India Millenium Deposit (IMD), a scheme tailored by State Bank of India and targeted at raising funds from non-resident Indians, is set to open for subscription from 21 October and will remain open for 30 days. SBI has structured the deposit as a five-year foreign currency denominated deposit, which will be denominated in US dollars, pound sterling and euro and will carry an interest rate of 8.50 per cent per annum, 7.85 per cent per annum and 6.85 per cent per annum respectively, payable half yearly. The depositor will have the option of receiving the interest half yearly or on a cumulative basis on maturity. The deposits will be in the form of certificates, transferable by endorsement and delivery.
Scotching all rumours that the product was being introduced under pressure from a government starved of funds, the bank's chairman, Mr. G. G. Vaidya said, "The issue is not being initiated at the behest of the government but on our own initiative. It's a good case for SBI and our spread is likely to be within a band of 80 basis points and 165 basis points." He said Moodys, the international rating agency, has given SBI a rating two notches over and above that of the sovereign and that SBI was on a strong wicket.
To be primarily invested in infrastructure projects, the bank is targeting to raise a minimum of $2 billion, but is open to larger mobilisation if the response is good. Announcing this to the press today, Mr Vaidya, said, "I had travelled to Dubai, Bahrain and Abu Dhabi some three weeks back to ascertain the mood of investors and the response from our NRI customers has been very good. I expect substantial investible funds coming in. Therefore we have not decided on the exact amount that is to be collected and have kept our options open".
He also declined to give any estimate of how much of the amount raised will be converted in Indian rupees and how much will remain in dollar form. "It will all depend on our requirements. There is no hard and fast rule", he said. To another question on whether this issue was a part of the government's fund raising program, he said, "Almost 65 per cent of government's borrowing program is complete and there is no problem what so ever in completing the rest. There is a lot of liquidity in the system."
He said the deposits are not being raised at a high cost, as has been the concern in some quarters. The net borrowing rate will be 8.50 per cent, 1.75 per cent over and above the prevailing Libor rate of 6.75 per cent. He said 1 per cent of the exchange risk is to be borne by the SBI and the rest by the government. As a temporary measure, Mr. Vaidya stated that the funds raised will be invested in government securities and five-year treasury bills at an interest rate of 10 per cent.
Mr Vaidya expects 40 per cent to 45 per cent to come from the Middle East. Incidentally, USA will remain out of the program. This, according to Mr. Vaidya, is because "SBI has been advised by its US counsel that regulatory matters for implementing the IMD program in the United States requires a considerable longer time frame than the time frame in which the IMD program is to be implemented. Accordingly IMD will not be implemented in the USA".
To a question raised by domain-B Mr Vaidya said, "Even though international interest rates have gone up we will be lending at rates which will help us to protect our margins/spreads. We are traders and there is adequate demand for funds at this point of time".