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Asian crisis, holidays blamed for RIBs' moderate show, but SBI remains optimistic

Syed Firdaus Ashraf in Bombay

State Bank of India received a major setback as its much-publicised Resurgent India Bonds failed to mop up the targetted $ 2 billion by the day-end.

Today was marked as the earliest closure day and the day's development has belied the market expectations of the RIBs emerging as a runaway success.

Thomas Cook's Chief Forex Dealer Mrudul Gokhale told Rediff On The Net: "The SBI was too optimistic. They had expected nearly $ 6 billion to flow into the country through these bonds. However, the ongoing currency crisis in Asia has had an impact on the non-resident Indians and they did not invest in the issue in a major way as the government expected."

ANZ Investment Bank's research head Anindo Chatterjee said: "I feel the setback was due to various factors like the holidays in the Gulf states, the rumours floating around about the devaluation of the Chinese renminbi and the Japanese yen crisis."

Agreed Jardine Fleming's Chief Investment Officer U R Bhatt. "India was the only country which had not been hurt by the southeast Asian crisis. However, seeing the RIBs' performance, I feel that the crisis has indeed affected India since the expected money has not come in."

Market sources were quick to point that the lack of the expected ''overwhelming response'' to the RIBs is a blow to the government. Just a couple of days ago, Finance Minister Yashwant Sinha said that the economy was all set to revive by next month and that the corporate world will show an upward trend.

Meanwhile, State Bank of India launched a damage-control exercise. In a statement, SBI maintained that the response to the RIBs is ''very good''. It reiterated that ''a large number of small applicants still wanted to apply for the bonds''.

Gokhale is not convinced. "The big amount can come only through the big NRI investors and not the smaller NRIs."

But SBI sought to attribute the ''setback'' to the fact that the banks and markets were closed in the Middle-East and southeast countries for a couple of days. SBI also extended the date of early closing by a week to August 24.

It was pointed out that along with SBI, ten other international banks and three Indian public sector banks were involved in subscription collection.

SBI has not officially announced the actual amount raised so far through the RIBs. But reliable sources told Rediff On The Net that it is ''very close'' to the target of $ 2 billion.

It may be recalled that Prime Minister Atal Bihari Vajpayee in his Independence Day address said that more than Rs 50 billion have been invested in the RIBs by the NRIs.

Market sources sought to draw comparisons with the India Development Bonds that were floated when Manmohan Singh was the finance minister and P V Narasimha Rao the prime minister. Then, the target was $ 1.8 billion which was raised well within the stipulated time with inflows exceeding $ 2 billion.

"The problem today is that lot of NRIs based in the US and Europe have been affected by the southeast Asian crisis. They have burnt their fingers once and would be cautious in investing their money once again in such bonds," said Chatterjee.

Another problem, he added, is that a lot of money was transferred from the foreign currency non-resident (b) to the RIBs.

"There was nearly $ 8 billion in the kitty of the FCNR (b) and I feel that lot of money has been transferred from this account to RIBs which is a setback as no new fresh funds have flowed in," said Chatterjee.

In an interview with Rediff On The Net on the eve of the RIBs launch, SBI chairman M S Verma opined that fresh funds will flow rather than people shifting their money from FCNR (b) to the RIBs.

Bhatt concluded: "The emerging markets always faced this kind of problems; I'm sure that SBI will achieve its target before August 24."