Each year on an average, the rupee depreciates about eight per cent against the dollar. During years like 97, depreciation has been faster. In the first half of this year, the rupee has already fallen about seven per cent against the dollar. The weakening of the rupee adds to the cost of overseas loans, which is what the IMD is. That's because the SBI ultimately makes money domestically, in rupees and the government, which largely owns SBI, gets all its revenues in the local currency too.
Depreciation means more rupees for every dollar-worth of interest payment.
In India, the average depreciation rate is about eight per cent per year, though it can go up in bad years. This year for example, the rupee has fallen about seven per cent against the dollar in the first eight months of the year. Apart from depreciation, raising the bonds entails transactions costs, believed to be worth another one percentage point. Of this 17.5 per cent, the SBI will pay the dollar interest rate, the transaction cost and one per cent of the total depreciation cost, a total burden of 10.5 per cent. That makes the IMD a very costly proposition and makes SBI look extremely foolish.