The five-year instrument, denominated in dollars, pound sterling and deutsche marks will carry coupons of 7.75 per cent, 8 per cent and 6.25 per cent, respectively.

Confirming the move, a source in SBI Caps, the lead arranger to this issue, said: "It has been decided that no bank will extend loans for investments in RIB. However, the NRIs and OCBs can get loans from banks using the bond as a collateral, provided the concerned banks are satisfied about the purpose of raising the loan."

The State Bank on Monday submitted the draft prospectus for the bond issue to the Securities Exchange Council (SEC) in New York and Futures Securities Authority (FSA) in London. "We hope to get the clearance in the next few days," sources said.

The relatively high coupon rate on the bond willopen up arbitrage opportunities for OCBs, merchant bankers said. "They can go for interest rate swap -- from fixed rate to floating rate -- and make a good spread. They can also make a spread by arbitraging between RIB and an assured five-year line of credit," sources said.

The NRIs and OCBs can avail of overdrafts against the Resurgent India Bonds on line of FCNR(B) deposits. In case of FCNR(B) deposits, loans are given to depositors at an interest rate which is two percentage point higher than the deposit rate. The depositors are required to liquidate the overdraft by remitting funds from abroad. Resident Indians are also allowed to take loan using FCNR(B) deposits as guarantees. They are, however, charged market-related interest rates linked to banks' prime lending rate (PLR).

In case of Resurgent India Bonds, bond holders will be able to raise funds at a rate cheaper than the coupon on the five-year instruments as loans abroad will be linked to Libor (and not the coupon rate of the bond).

The StateBank is expected to mop up over $2 billion as there has been overwhelming response among NRIs for the RIB, sources said. Although the offer will be open for 30 days, the bank reserves the right to close it anytime after 10 working days. The roadshow for the issue will be kicked off on July 24.