"Indian debt papers are very illiquid abroad. It is very difficult to find bondholders wanting to sell at the highly discounted prices quoted publicly.It's very hard to strike any deals now," said an ICICI source.

Due to the illiquid nature of the market, it is difficult to say if the spread on the paper has come down after the initial buyback, the source said. The buy and sell quotes available publicly are so few that the large discount to issue price reflected in it is unrealistic and not reflective of the real price levels at which deals can be executed, said sources in investment banking circles.

Industrial Development Bank of India (IDBI), the other leading financial institution, had decided notto go for buyback of its bonds listed abroad. With this, any chance of a major correction in the huge spread on Indian papers abroad has become bleak. The spread on Indian papers was reported to have increased to 500-800 basis points after the sanctions and Moody's downgrading. However, all the financial institutions are awaiting the details of buyback of other Indian papers. Many corporates, with debt listed abroad, have indicated interest in buying back their bonds on the face of fears of faster depreciation of the rupee as well as to take advantage of the savings in cost by buying back at a discount to the issue price.

The Reserve Bank of India on June 11 allowed financial Institutions to buy back their papers listed abroad with the purpose of liquidation. The RBI permission was in response to an application from ICICI to buy back its bonds following the huge spread at which they were being quoted. The idea behind the ICICI request was to enable it to park its surplus foreign exchange funds in the higheryielding paper of its own as well as to lower the spread so that the institution can raise fresh funds abroad at competitive rates. The RBI permission was, however, limited to buyback leading to extinction of the paper and the use of ICICI's rupee resources for the purpose. This, in effect, means that the institution needs to purchase dollars from the domestic market for buying back the bonds.

The RBI insistence on using the rupee resources has thwarted the institution's original aim of parking its fund in the higher yielding paper of its own and other Indian blue chip companies. At present, ICICI has to park its foreign exchange surplus funds in the lower yielding US treasuries.

Till date, ICICI has had 10 overseas debt issues, including three bond issues in Switzerland, two private placement issues in Japan, three floating rate note (FRN) issues, two fixed rate Euro bond issues and one Yankee bond ($150 million) issue.