Resurgent India Bond redemption: How much of it will flow back?

 P G R PRASAD

 Managing Director,

 SBI Mutual Fund

 Although the banks are flush with deposits, the credit off-take being less than expected levels, banks are trying to lure the Resurgent India Bond (RIB) investors to put the proceeds in their non-resident Indian (NRI) offerings.

 But the State Bank of India and the market were surprised when the Reserve Bank of India (RBI) suddenly announced a revised cap for interest rates on NRI deposits, making the rupee-denominated deposit scheme less attractive.

 However, the foreign currency denominated deposit scheme, where SBI has announced interest rates higher than the FCNR interest rates, continues to be attractive.

 The existing investments in RIBs can be broadly classified into three categories - the leveraged funds; funds from high networth individuals (HNIs or professionals and yield-conscious NRIs); and funds from comparatively lower income group.

 The leveraged funds are those where investors have borrowed money to invest in RIBs to take advantage of the differential in interest rates.

 These funds, constituting about 40 per cent of the existing RIBs will not stay back for obvious reasons.

 In the case of the HNIs and professionals, the investments in India are