The State Bank of India will pay India Millennium Deposit holders from the proceeds of treasury bills maturing in the last week of this month and recovery of loans given to banks against IMD collections made.
SBI will receive on December 27 or 28 the Rs 11,000 crore (Rs 110 billion) it had lent to a group of banks including foreign banks, which helped it raise $5.5 billion of IMDs in November 2000.
The bank will have another Rs 22,000 crore (Rs 220 billion) of funds from the maturing of treasury bills of various maturities just before the IMD redemption date of December 29, SBI sources said.
In addition to the principal amount, SBI will have to pay an amount of $1.8 billion towards interest to IMD holders. The outgo for SBI will be Rs 33,000 crore (Rs 330 billion) on account of redemption of IMDs.
"The maturing t-bills and recovery of loans given to banks will totally meet the fund requirements for the IMD redemption," the sources said.
The funds thus raised would be placed with the Reserve Bank of India for buying $7.3 billion in foreign currency.
There won't be any impact of the redemption of treasury bills on the bank's statutory liquidity ratio (SLR), as its SLR portfolio is currently at a comfortable level of 37 per cent. It is mandatory that banks maintain a minimum SLR of 25 per cent.
In a statement last week, the RBI said it had put in place arrangements for redemption of IMDs, in close coordination with SBI. The entire foreign exchange outgo will be met by the RBI through sale of its foreign exchange reserves to SBI.
RBI governor Y V Reddy has, however, admitted that the IMD redemption will further squeeze liquidity in the banking system.
The RBI has said eligible market participants can take recourse to the LAF (liquidity adjustment facility) and SLAF (the second liquidity adjustment facility) of the RBI for short-term residual mismatches in their rupee funds position.
The RBI would ensure smooth redemption within the stipulated timeframe to avoid any impact on the money, government securities and foreign exchange markets.