NRI bonds fraught with legal challenges, says SBI chief

Pratip Chaudhuri said such bonds might expose issuing entities (banks) to class action suits in the US for making an offer to a specific ethnic group in that country

To bolster India's foreign exchange reserves and curb the sharp slide in the rupee, issuing long-term bonds to non-resident Indians in international currency is being considered. However, State Bank of India (SBI) Chairman Pratip Chaudhuri says this is an option fraught with legal and regulatory challenges.

He said such bonds might expose issuing entities (banks) to class action suits in the US for making an offer to a specific ethnic group in that country. "You cannot go to the US and say I will give a bond to this person, not to the other. It has to be a universal offering. We are facing a lot of class-action suits against previous ones."

Also, tax administration had become more stringent in the US and the rate of interest today wasn't exciting, Chaudhuri said, adding all countries in the world, especially emerging nations such as Indonesia and Philippines, were issuing sovereign bonds.

Where the bond would be listed, as well as its trading, were vital aspects, said a senior executive with a private bank. Another senior private sector bank official said raising foreign exchange by issuing bonds to non-resident Indians had a direct impact on rupee liquidity in the system. This, he added, might increase the flow of rupee resources into the system, contrary to the Reserve Bank of India's stand to curtail liquidity.