"Overall, the `regular income bond' has been able to rope in the maximum subscriptions. However, the `retirement bond' -- which offeres three options to the investors and has yield-to-maturities (YTMs) ranging from 12.52 per cent to 12.98 per cent -- has come out as the worst performer," sources said, adding that the domestic financial institution (DFI) may not offer this scheme in its subsequent issues.

The exact amount garnered was however not disclosed by IDBI officials, who cited operational difficulties in collating the data and Sebi guidelines prohibitting such a disclosure before the closure of the borrowingprogramme. "We are confident of garnering close to Rs 1,400 crore through flexibond-VII as the demand -both retail and institutional -- is expected to pick up in these last few days," senior IDBI officials said.

Banking industry sources, however, said that the issue will manage to garner only about Rs 1,100-1,200 crore for the DFI on the strength of institutional demand. This is on lines of the recently concluded borrowing programme of another financial institution, ICICI, which managed to get only about Rs 370 crore against the targeted amount of Rs 600 crore.

The flexibond-VII issue, which closes for investor subscription on August 19, offers four unsecured bond schemes aggregating Rs 750 crore, with the DFI having an option to retain oversubscription upto an additional Rs 750 crore. The four schemes offer an average annualised interest rate of 12.50 per cent.

IDBI officials pointed out that the scheme has not been able to perform well in the semi-urban and rural parts of the country. This is despitethe fact that Flexibond-VII offers high returns at a time when there is a downward pressure on the interest rates --primarily on account of low rate of inflation.

INSIGHT:

Factors for tepid response

The lack of interest in the flexibond issue is a play on two factors. One, the taxable nature of the return from the instruments, which reduces the effective yield, at a time when interest rates are quite low. Second, the existing alternatives of investing in mutual fund schemes, the returns from which are free of tax and very attractive. Mutual funds including the UTI have seen record inflows in the current year from retail investors, and as a result offers of fixed income taxable instruments are bound to suffer. Though interest rates in the rest of the economy might have softened, the ever popular post office monthly savings scheme (POMIS) continues to offer a 12 per cent tax free return in addition to section 88 benefits.

-- Aaron Chaze