In response to questions, Mr Vaidya said ``IMD is not a costly deposit.''The SBI, he added, had already been assured of $5 billion through the IMD from the collecting bankers. The bank proposes to invest 40 per cent of the IMD funds in government securities, which, currently, carry coupon rates in the range of 10.95 to 11 per cent. The SBI, at current rates, is expecting a spread of 1 per cent on investments in government securities.

Unlike the Resurgent India Bonds (RIB), IMD scheme will not target the US market, Vaidya said. He added that "due to applicable regulatory matters in the US, it was not possible to implement the IMD programme within the time-frame of this deposit programme. Accordingly, IMD programme is not being extended to the US."

The IMD offering is coming after two years of launching the RIB, which had mobilised $4.2 billion. IMD will be in the form of a certificate of deposit transferable by endorsement and delivery. The core value of the issue is $2 billion and any amount received before the closing date will be retained by the bank.

Elaborating on investment of funds, Mr Vaidya said that 40 per cent of the proceeds would be invested in government securities and the remaining amount invested in the infrastructure sector, directly and indirectly. He added that the 50 per cent of the amount mobilised by the collecting banks, will be retained by them at an interest of 10 per cent per annum for investment in the infrastructure sector. Investment in infrastructure sector projects and bonds, he said would yield "anything between the PLR and 15 per cent".

The IMD, he said, was basically targeted at the NRIs and OCBs from the Middle East countries, who had contributed 37 per cent of the total RIB funds collected, followed by Europe with 22 per cent. u The US investors, which have been excluded this time, only contributed to the extent of 14 per cent towards the RIB corpus.

The IMDs to be denominated in US dollar, Pound Sterling and Euro will carry a coupon rate of 8.50 per cent, 7.85 per cent and 6.85 per cent, payable half yearly in three currencies respectively. The IMDs will have a tenure of five years.

The depositors will have the option of receiving the interest half yearly or on a cumulative basis on maturity. The principal and interest, thereon, will be fully repatriable in respect of non-resident investors.

India will exempt the interest income on the IMDs, from income tax and wealth tax and the depositers will also be permitted to prematurely encash the IMDs in Indian rupees without any penalty, after six months from the effective date of deposit, Mr Vaidya said.

The programme is slated for launch on October 21, 2000 and will be open for a period of 30 days, but could be closed earlier. However, this closure shall not be earlier than October 31, 2000.