The 1991 series of non-resident Indian bonds have resulted in a foreign exchange loss of Rs 750 crore to the government. The budget presented by finance minister Yashwant Sinha contains a provision for meeting the exchange loss of Rs 750 crore.
This could be the reason why the government has decided not to bear the exchange risk on the India Resurgent bonds which will be issued by State Bank of India.
The government agreed to bear the exchange risk on NRI bonds in 1991 in view of the desperate need to attract dollar funds at a time when the country was going through serious balance of payment crisis. But the situation is now different, with the Reserve Bank and the government feeling that the foreign exchange reserves is comfortable.
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The 7-year NRI bonds issued in 1991 have begun to mature from April 1 this year. In the seven year period, the rate of exchange of rupee against the dollar has steadily moved downwards from Rs 31.37 to a dollar to more than Rs 40 a dollar at present.
Banking sources said it is possible to work the India Resurgent scheme in such a manner that NRIs can exchange the old bonds for new ones, instead of encashing the old ones. It, however, remains to be seen whether the government will permit the SBI to make such an offer to NRIs who have not yet encashed the 1991 bonds.
Given the fact that SBI will be bearing the exchange risk, the India Resurgent bonds is expected to be very attractive to NRIs. " It will not be possible for us to offer anything less than the prevailing interest rates in western countries. Coupled with the fact that the bonds are repatriable, free of exchange risk and attract no taxes, they are definitely more attractive than similar investments in western countries" , an SBI official said.