The issue opens on October 21 for one month and the minimum deposit for participating in the scheme is pegged at 2000 in currency including dollar, pound sterling and euro. SBI Capital Markets will be advisor and lead arranger to the programme.

However, according to SBI chairman Mr GG Vaidya, who announced the details of the fund-raising programme, the bank may close the issue 10 days in advance and retain the surplus amount. SBI expects 40 to 45 per cent of the proceeds to pour in from the Middle East.

"I expect around $ 5 billion to be mobilised through the scheme," Mr Vaidya said, adding that the IMD had been designed after assessing the NRI appetite for long-term instruments. SBI's Resurgent India Bond (RIB) in 1998 had raised around $4.18 billion.

However, SBI, which had raised around 12 per cent of RIBs from the US, will not be accessing the US market this time, as "the US requires a considerably longer time-frame for clearing the IMD scheme," said Vaidya. SBI would incur an all-in cost of 10 per cent per annum.

The deposits will be denominated in US dollars, pound sterling and euro and will carry an interest rate of 8.5 per cent, 7.85 per cent and 6.85 per cent payble half yearly in the three currencies, respectively. The depositor will have the option of receiving the interest half yearly or an on a cumulative basis on maturity. The principal and interest thereon will be fully repatriable in respect of non-resident holders.

The deposit scheme is in the nature of certificates of deposit, which is transferrable by endorsement and delivery, and the proceeds of the issue will be invested mainly in core sector projects, said Vaidya.

Compared to the Resurgent India Bonds issue, which raised USD 4.23 billion in 1998, IMD is more competitive as globally, interest rates had moved up, he explained.

Vaidya pointed out that RIB was procured at 7.75 per cent (2.25 per cent above the then-prevailing six month LIBOR) while the IMD fund-raising cost amounts to 8.50 per cent (1.75 per cent above the current six month LIBOR).

The all-in cost 10 per cent comprises 8.50 per cent coupon rate, 0.5 per cent issue expenses per annum and bearing one per cent exchange rate risk.

Vaidya categorically stated that the purpose of the IMD was not to support the government's borrowing programme.

The deployment of funds from IMD in government securities is expected to give returns of 85 to 100 basis points over a five-year period, he added.

Giving a break-up of investment of the proceeds, he said, 40 per cent of the proceeds would be parked in government securities, 50 per cent with various banks which helped it mobilise deposits for IMD, for further investment by them only in core sector projects and the balance to be invested by SBI itself in infrastructure projects.

Pending investment opportunities, SBI would park the money in government securities and treasury bills.

SBI would bear one per cent exchange rate depreciation, while the remaining risk would be borne by the Government of India.

"No cash reserve ratio will need to be maintained on IMD, as these deposits are akin to Foreign Currency Non-Resident deposits," Vaidya said, adding the bank would maintain a statutory liquidity ratio of 25 per cent.

When asked whether the IMD proceeds would be utilised to support the government's borrowing programme, he averred that the government borrowing plan was almost 65 per cent through and the balance 35 per cent would sail through without the support of easy liquidity conditions.

SBI already has a kitty of over $27 billion in its forex deposits.