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RIBs collect $ 3.46 billion, market calls it 'decent success'

Syed Firdaus Ashraf in Bombay

The State Bank of India's Resurgent India Bonds, the foreign currency scheme for non-resident Indians, collected around $ 3.46 billion by the evening in India. SBI officials said by the time the issue closes in the United States, the figure could touch $ 4 billion.

Earlier, SBI had extended the issue's earliest closure date from August 17 to 24, citing various reasons like holidays in the Middle East and that the permission from the Securities and Exchange Commission, the market regulator in the US, was received at the eleventh hour.

However, the RIB issue did not get an encouraging support from NRIs in the United States, banking sources added.

But market sources said the RIB issue is a ''decent success'' that proved incorrect the credit rating agencies' verdicts on the Indian economy and the global markets' post-Pokhran sentiments.

Said SBI deputy general manager K Ramesh, "The issue is a huge success." He explained the investors' low-key response thus: "It's normal for any investor to wait and watch before investing. Investors pitch in at the last moment, when the issue is about to close. That's what happened with the RIBs." Asked about the day-to-day break-up of collections, he said, "It's too early to give such information."

Foreign exchange dealers, however, felt they could now say that RIB's show will boost foreign institutional investors' sentiment that could help shore up the sliding rupee.

Thomas Cook's chief forex dealer Mrudul Gokhale said, "I feel the rupee will stabilise in the next three months, thanks to the additional $ 3.46 billion flowing from RIBs. This is particularly relevant at this juncture since currencies are depreciating all over Asia."

Agreed ANZ Investment Bank's research head Aninday Chatterjee. "Collection of $ 3.46 billion is a decent success at a time when foreign institutional investment, foreign direct investment and external commercial borrowings are showing a downtrend. Proceeds from RIBs will surely stabilise the dwindling rupee in the short-term," he said.

The rupee has been plummeting since 1996, recording an 18 per cent fall in a span of 30 months; the fall gained momentum after the imposition of nuclear-related sanctions.

Although there was broad agreement on the RIB's expected support to the rupee, Gokhale voiced concern that the money may have been shifted from the foreign currency of non-resident (banks) accounts to RIBs, (something that SBI chairman M S Verma dismissed in an interview to Rediff On The NeT). "There is nearly $ 8 billion in FCNR(b). I hope it was not used for buying RIBs. If that is what had happened, the RIBs won't have much impact on the economy," she said.

Mecklai Financial & Commercial Services vice-president Pramod Maskeri felt the RIB's success reflected the investor's "unflinching faith" in India's economy in the face of Moody's downgrade of the country's sovereign rating. "The NRIs have reposed their confidence in the Indian economy. RIBs are a shot in the arm for the government."

As an afterthought, he added: "RIBs carry high interest component. The proceeds should be used on infrastructure as originally planned. Else, there will be interest repayment problems.''

Agreed Chatterjee. "No sector needs money so badly as infrastructure. Investments should be sound and judicious. Otherwise, RIBs will prove too costly for the government," he said.

In a related development, SBI has been sued in the New York State Supreme Court in Manhattan by a US citizen, Leonard Schoenfeldand, and other non-Indians, for what they alleged was the bank's racial discrimination. Their petition submitted that SBI, by offering RIBs exclusively to Indians, had violated the US constitution, besides causing ''heavy monetary loss'' to non-Indians.

SBI officials in Bombay pleaded ignorance of the suit and said no official paper has been received in this context.