BOMBAY, 20 October 2003 — India’s foreign exchange reserves have never been so high and the rupee against the US dollar has never been this strong. Yet, a few months back, the Reserve Bank of India (RBI), clearly sent out a message to the Non-Resident Indians (NRIs) that is shutting down the doors on all possible avenues offering arbitrage opportunities for those seeking to take advantage of the higher interest rates in India against those prevailing overseas. The government of India has clearly sent out a message that in the light of the swelling forex reserves position, it is in no mood to offer high interest rates to attract further inflows. RBI set a cap on the interest rate that banks can offer on non-resident (external) rupee or NRE deposits.

The biggest blow is that NRIs are now no longer eligible to invest their monies in small savings instruments such as Public Provident Fund (PPF), National Savings Certificates (NSCs) and Post Office deposits. However, the existing NRI account holders are allowed to retain their PPF or NSC investments until maturity, subject to such money not being repatriable.

Well, after this move came in, the NRIs have been in search of the “right” avenue to park their funds into. The small savings schemes have been shut down, bank deposit rates are not too lucrative, the mutual funds have yet to deliver, the Indian stock markets are difficult to manage from abroad, so where do the NRIs go? And to top it all off, the Resurgent India Bonds (RIBs) maturity proceeds are now in the hands of these NRIs and they desperately need a good investment deal.

And keeping this in mind, it looks like the State Bank of India (SBI) and its subsidiaries are going all out to mop up deposits from the redemption of RIBs. SBI Life Insurance Company has launched a single-premium product, Setubandhan, which guarantees 5 percent annual return over five or 10 years.

The key feature of this product is that while it is denominated in Indian rupees, the benefits payable on maturity or in the event of death of the NRI policyholder will be freely repatriated in foreign currency at the prevailing foreign exchange rate.

The policy terms are for five years and 10 years with the same rate of return for both. Upon maturity, the sum assured and guaranteed additions will be payable to the policyholder.

In the unfortunate event of death, the sum assured as increased by the guaranteed additions till the date of death will be payable to the nominee. While the base product is a single premium product, the optional dependent cover and critical illness rider have annual premium payments. The single premium cover will cost Rs.1,019 and Rs.996 for sum assured of Rs.1,000 for five and 10-year terms.

The minimum sum assured starts from Rs.300,000 and goes up to Rs.10 million. SBI Life is planning to tie-up with corporate agents for marketing its NRI product in the Middle East, to facilitate application procedures and remittances.

The product combines life cover for non-resident Indian (NRI) investors with the option of taking term cover for dependents residing in India, aged between 18 and 55.

The insurance cover for them is available for up to 65 years of age and the benefits will be paid locally in rupees.

The dependents are covered under a term policy with premium back option. All premiums paid for covering the life of the dependent over a period of 10 years will be refunded.

If the term is for five years then 50 percent of the premium amount will be refunded and if the term is for 10 years then 100 percent of the premium amount will be refunded. In the unfortunate event of the death of the dependent the entire sum assured is payable to the nominee.

Apart from the insurance benefits, NRIs and their dependents can avail of an optional critical illness cover of up to Rs.500,000 without medical examination. Six major ailments are covered under this, such as cancer, heart attack, heart bypass surgery, kidney failure, stroke and major organ transplant. SBI Life will make payment toward the illness immediately upon diagnosis of the disease provided the insured survives for 30 days after the diagnosis. No medical bills are required in lieu of the payment. What is to be noted is that the NRI is not required to undergo a medical check-up though dependents have to get one.

SBI Life is offering a special introductory bonus where a free health check-up will be offered at any authorized medical center in India within two years of subscribing to the policy if the sum assured is of Rs.10 lakh and above and the policy is taken before December 2003.

Analysts are of the opinion that this offer from SBI Life could not have come at a better time. It has come at the most opportune time when NRIs are currently flush with funds and are looking at the galloping Indian economy for parking their funds. Setubandhan is a good policy.

It gives insurance cover and at the same time, provides an investment tool which gives you a 5 percent interest rate over the next 10 years. Now this in itself should be good reason enough, given the current regime of falling interest rates.