The State Bank of India is considering launching an India-dedicated offshore fund as one of the options to retain the India Millennium Deposits which will come up for redemption in December this year.
The redemption will release over $7 billion -- $5.5 billion of principal and the interest.
The SBI is devising ways of rolling over a part of the fund as it needs dollar funds to support the growth in its overseas operations. "We are looking at various options, and floating an India dedicated fund is one of them," an SBI executive said.
It is not known whether the bank will do it through its mutual fund outfit SBI Mutual Fund or any other overseas subsidiary.
The Securities and Exchange Board of India rule on domestic mutual funds floating offshore funds is not clear, though there is no bar on a domestic asset management company advising an offshore fund. "The SBI can float the fund through Societe Generale, the overseas partner of its MF arm," said an industry source.
The number of dedicated India funds doubled last year to 12, while assets under management by these funds and non-dedicated funds more than doubled to $1.35 billion in 2004.
"At this point, the corpus could be around $2.5 billion," said a fund manager. The latest to launch India-dedicated funds are the OCBC group of Singapore and Malaysia, HSBC, Fidelity, Prudential and Nomura of Japan. A few more international funds operating in Japan are planning to establish India-dedicated equity funds.
Analysts said more Japanese funds were making a beeline to India as they were disappointed by the returns from Chinese markets.
"It will be interesting to see how many of the depositors, which have invested in the IMD, would like to take exposure in the equity market," said another fund manager.
The SBI Life Insurance is planning to seek the insurance regulator's approval for a single-premium, guaranteed-returns product, with a target of mobilising a premium income of Rs 8,000 crore (Rs 80 billion) from the IMD redemptions.
The SBI is also considering a new deposit scheme to complete the range of offerings, seeking to ensure that a major chunk of the IMD proceeds are reinvested in the country.
Foreign banks which account for almost 38 per cent of funds raised through IMDs also want to roll it over. They would like to retain the funds as term loans reset at a new rate of interest.
The IMD scheme was launched in 2000 to shore up foreign exchange reserves.
Nearly 40 per cent of the IMD deposits are under lien as the investors had taken loans from banks for investment in the deposit offering. The returns offered by IMDs were much higher than the prevailing market rates.
