The Reserve Bank of India has asked the State Bank of India to rework its special non-resident Indian deposit scheme, which was slated to be offered as an option to the investors of Resurgent India Bonds to park their proceeds.

SBI was expecting the regulator's nod for its special scheme last week, but official sources said the country's largest bank was asked to modify it after the RBI capped the interest rate on non-resident (external) rupee deposits of 1-3 years at 2.5 per cent above the London inter-bank offered rate.

"We have applied afresh and expect to get RBI's nod for the new NRI deposit scheme within a few days," a senior SBI official told PTI from Mumbai.

SBI had earlier submitted a proposal for launching its NRI deposit scheme with an attractive return, which was higher than the LIBOR plus 2.5 per cent.

But viewing the arbitrage taking place following rupee appreciation and interest rate differential between India and the United States markets, the RBI decided to cap the rates on NRE deposits to check the "hot money" movement.

The interest offered by SBI on its NRE deposits, which was earlier pegged at 5 per cent, came down to 3.75 per cent with the LIBOR hovering at 1.2-1.25 per cent.

SBI had pinned hopes to retain about $2 billion from the $4.2 billion RIB proceeds when they come for maturity on October 1, 2003.

Accordingly, SBI has communicated to the RIB holders that they can either take the proceeds in cash or reinvest it in the existing deposit scheme or a special deposit scheme that would be launched after the RBI's approval.

The maturity amount of RIBs would be paid in US dollars or the United Kingdom pounds or Euro in case the bondholders continue to be NRI or has become a resident in India before the maturity of the bonds.

The resident Indians can place their RIB proceeds as term deposits or in the resident foreign currency accounts of SBI.

The bank would pay in non-repatriable Indian rupees at the prevailing forex rates if the bondholder is a resident Indian.

SBI officials said there has been an encouraging response from NRIs to reinvest if the bank offers an attractive return.

The RIBs, launched in 1998, were a roaring success, even at a time when India was facing economic sanctions following its nuclear tests.

SBI, which had targeted to mop up $2 billion, actually raised over $4.2 billion through the 5-year tax-free quasi-sovereign bonds offering an attractive 7.5 per cent return.

SBI has set up a RIB redemption cell to ensure the smooth repayment of RIB proceeds to investors from October 1.