The redemption of Resurgent India Bonds in July will only marginally dent the country's foreign exchange reserves as the bulk of the RIBs is expected to be converted into NRI deposits, a government source said.

The RIBs, floated by the State Bank of India in August 1998, had raised $4.23 billion through triple-currency bonds - US dollar, pound sterling and Deutsche Mark.

The five-year instrument, to be redeemed in July, carried an interest rate of 7.75 per cent for a dollar instrument, 8 per cent for pound sterling deposits and 6.25 per cent for DM deposits.

"We expect at least 40 per cent of the mop-up to stay back in the Indian system. It could be even more. Roadshows for wooing the bondholders to keep their money in India will be kicked off in due course," said the source.

The Iraq war and the recent trend of the dollar losing its sheen against other major currencies like the euro will encourage non-resident Indians to keep money in India, analysts said.

The country's foreign exchange reserves were pegged at $73.821 billion on March 22. The outgo of a few billion dollars on account of the RIB redemption is unlikely to have any impact on the foreign exchange assets, bankers said.

"The capital inflow is expected to continue. The RIB redemption will not have any bearing on the country's reserves," they pointed out.

Even though the return on NRI deposits is low compared to the coupon on RIBs, bond-holders are expected to convert the instrument into deposits as the returns in other markets cannot match rates in India.

"As the US currency loses its strength further, India may emerge as the favoured destination for overseas investors," said an investment banker. Around 12 per cent of RIBs came from the US.

NRIs, overseas corporate bodies and banks acting in fiduciary capacity on behalf of NRIs/OCBs bought RIBs.

he scheme was closed on September 4, 1998. The funds raised from the RIB scheme were meant to be used for the development of the infrastructure sector.

Interest is payable on RIBs on a half-yearly basis. It is paid either on a cumulative or a non-cumulative basis at the option of investors while the principle is payable on maturity.