Offshore banking will commence in the country on July 17 when the State Bank of India launches its Mumbai unit. With a capital base of $10 million, the unit will have a dollar-denominated balance sheet.

The State Bank of India is expected to transfer the bulk of its India-related business from its offshore units in Mauritius, Tokyo, Nassau and Bahrain to Mumbai.

In a parallel development, the bank is planning to hold international roadshows for a new deposit scheme in the last week of July.

The scheme, being worked out in consultation with the Reserve Bank of India, will be placed at the bank's forthcoming board meeting for clearance.

Sources said the bank had exhausted its $2.5 billion FCNR(B) kitty disbursing loans to corporates and hence the plan to mop up around $2 billion through the new scheme, which would be modelled on non-resident external deposits where non-resident Indians can deposit funds in foreign currency and on maturity get rupee funds.

State Bank offers 5 per cent to NRIs on 1-2 year NRE deposits. After taking into account the forward hedging cost, the net return works out to around 2.7 per cent.

A one-year FCNR(B) deposit, in contrast, pays around 1.15 per cent. The new deposit product would pay slightly higher than the NRE interest rates, a source said.

Apart from a 10-year tax holiday, the offshore banking unit will also not be subject to the cash reserve ratio requirement. It can also get exemption on the statutory liquidity ratio front.

This could enable it to offer a slightly higher interest rate. "For all practical purposes, the unit will operate as an overseas branch in India, adding value to SBI's balance sheet," banking sources said. 

The bank will open three more offshore units in Gandhidham, Kochi and Surat over the next few months.