The FCNR(B) corpus of banks other than SBI has suffered to a lesser extent at between 5 per cent and 8 per cent.

But the overall outgo from the system is higher owing to the large share of SBI in the overall FCNR(B) corpus. State Bank holds more than 50 per cent of the FCNR(B) deposits.

According to the latest Reserve Bank of India (RBI) annual report, the FCNR(B) deposits with all banks stood at $8.4 billion as on March 1998. FCNR(B) deposits are the single-most important source of foreign-currency funds for banks. SBI sources said the outgo from FCNR(B) funds towards RIBs was about 15-20 per cent. Bank of Baroda (BoB) and Bank of India officialssaid the outgo from their corpus was around 5 per cent.

Bank officials said they expected a considerable slowdown in the growth of non-resident Indian (NRI) deposits in the months to come, as a large chunk of the over $4-billion subscription to the issue has come from borrowed funds. Non-resident Indians are expected to pay back the loans in the coming mons.

Bankers, however, say that the outflow has been beneficial to them as the money comes back to banks in rupee denomination at a lesser cost. Though banks are offering only 5-6 per cent for FCNR(B) deposits, the actual cost after taking into consideration the exchange-rate risk (forward premium) works out to more than 12 per cent.

But in RIBs, as per the agreement, the government bears the exchange-rate risk, after passing rupee equivalent to banks at 9.5 per cent. SBI will be the biggest beneficiary, as other banks will get rupee funds at 9.5 per cent only on 50 per cent of their RIBs collection. With demand for FCNR(B) loans from domestic corporatesalmost nil owing to the uncertainty on the exchange-rate front, banks were forced to park them in low-yielding US treasury bills. Only recently banks have started buying out domestic corporates' forex loans overseas, using their forex funds to get better returns.

The biggest loser, according to bankers, is the government, which not only has to service the bond at a high interest rate of 7.75 per cent, but will also have to bear the exchange-rate risk which, even at a conservative 5 per cent depreciation of the rupee annually, is considerable at the end of five years. The tenure of RIBs is for five years, while the maximum tenure for FCNR(B) deposits is only three years.

One of the reasons why other banks have experienced lesser extent of outflow from FCNR(B) to RIBs is the hike in the FCNR(B) deposit rates during the period of the RIB issue. Banks like Bank of India and BoB had hiked there FCNR(B) deposit rates by around 50-75 basis points just prior to the bond issue. Both the banks have in the last weekslashed their FCNR(B) deposit rates to around 5 per cent for deposits of tenures ranging from six months to two years.