The India Millennium Deposit Bonds, or IMDs, were a series of foreign currency deposits introduced in 2000 by the State Bank of India. The bank floated the multi-billion-dollar deposit issue for a period of 5 years, and it came up for redemption on 29th December 2005.
The Purpose of the IMDs
These bonds came into the picture with the intent of boosting the foreign exchange reserves of India and supporting the depreciating rupee against the dollar. They were explicitly designed for NRIs to channelize their overseas savings and earnings into Indian savings instruments. The bonds were also eligible for deposits by Overseas Corporate Bodies (OCBs).
Benefits to Investors
Bonds have been an attractive investment option for NRIs as they offer higher returns than overseas banks. Besides, there is no foreign-exchange risk to the investors. While the IMD bonds denominated in U.S. dollars offered an interest of 8.5%, those in euro and pound offered 6.85% and 7.85% respectively.
Outflow From the Bonds
RBI (Reserve Bank of India) estimated the total outflow on the redemption of these bonds to be $7.3 billion foreign exchange.
On 28th December 2005, RBI sold $5.107 billion to SBI for the redemption of the bonds. Out of this, $4.569 billion was in U.S. dollars, 113.176 million was in euros, and 233.259 million was in pounds. RBI was to sell the rest of the amount, $1.97 billion, to SBI.
The Arranger and Collecting Bank
SBI appointed the Punjab & Sind Bank to act as arranger and collecting bank for the India Millennium Deposits scheme. As arranger, the bank mobilized deposits from eligible depositors. As collecting bank, it collected and handled the application forms of deposits.
Similar Schemes by RBI
Apart from the India Millennium Deposits, RBI has come up with a few other measures in the past to stabilize the rupee. These include the $5 billion Resurgent India Bonds in 1998 and the $34 billion foreign currency non-resident deposits (FCNR-B) special deposits in 2013. The former raised $4.8 billion while the latter raised $30 billion after a 3-year maturity. The government typically floats NRI bonds to get institutional funds and a foreign pension. As they come with an implicit RBI guarantee, they have proven beneficial to both NRIs as well as the Indian rupee.
