The Hindu Business Line : IMD redemption: SBI unlikely to face exchange rate burden

GIVEN the current rupee-dollar rates, SBI seems to be fairly assured of safe sailing with respect to any major additional burden on its India Millennium Deposit (IMD) scheme due to exchange rate fluctuations.

On Friday the rupee was at 45.34 against the dollar, well below the exchange rate of 46.65 on the date of the IMD issue in 2000.

The bonds are due for redemption on December 29. Given that it is the festival and holiday season internationally, little is likely to happen in the next 10 days that could affect the rupee significantly. Analysts have been saying that any dollar rally may be expected only in early 2006.

And the Reserve Bank of India is likely to fix the exchange rate for purchase of dollars for IMD redemption in the last week of December, a few days before December 29, according to banking sources.

The total outgo, including interest, would work out to over $7 billion for SBI. The bank had collected $5.5 billion in 2000.

SBI also expects to retain at least 15-20 per cent of the IMD proceeds. It has offered new reinvestment schemes; some are plain vanilla FCNR B and NRE Deposit schemes, while some offer interest rates 40-50 basis points above the FCNR rate.

Other SBI entities such as SBI Mutual Fund and SBI Life Insurance have also introduced special products, hoping to get a share of the IMD pie.

The interest rates for IMD were 8.5 per cent for US dollar deposits, 7.85 per cent for sterling deposits, and 6.85 per cent for euro deposits, which were higher than normal FCNR (B) deposits.

Bankers said that most investors would be reconciled to investing in FCNR or NRE deposits since today no product can give such high returns as the IMD.

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