NRIs Trust Desi Banks, c$513 m in Sept

   Pour $787 Million During April-September

   THERE is no crisis of confidence in Indian banking as far as the diaspora is   concerned. At a time when many banks overseas are struggling to raise liquidity to   stay afloat, overseas Indians are reposing their faith in Indian banks and betting on   the rupee having bottomed out. Lured by higher returns, NRIs have poured in $513   million in NRI deposits in September this year - the highest since December 2006.

  According to the data released in the Reserve Bank's monthly bulletin, NRIs parked   $513 million (on net basis) through its schemes: foreign currency non-resident (banks) or FCNR (B), non-resident external (rupee accounts) or NRE (RA) and non-resident ordinary (NRO) accounts. Bulk of this has hit the NRE(RA) scheme, which reflects the attractiveness of rupee-denominated deposits to NRIs. This   scheme became the flavour as with rupee depreciation against the dollar, NRIs get   more value out of the dollar.

  Though banks did raise $525 million this January, a bulk of this was through NRO   deposits that are not repatriable and meant for local use by the NRIs. During
  April-September this year banks raised a cumulative $787 million through NRI   deposit schemes as compared to an outflow of $78 million in the year-ago period.

 Bankers say it is largely a case of flight to safety by the diaspora, which has been accelerated by deposit rates becoming more attractive. These deposit rates did make a lot of heads turn - from the average bank account owner to banking giants schooled in the principles of investools. Since mid-September, RBI hiked the cap on returns offered on NRI deposits thrice. The last was a 75 basis points hike last week. The return on FCNR(B) deposit is capped at libor/euribor/swap rate plus 100 bps and the return on NRE (RA) is capped at libor/euribor/ swap rate plus 175 bps.

  The pattern of deposits indicates that depositors have preferred to park more in NRE
  (RA), where the currency risk is borne by the depositor. They are shunning FCNR (B)
  deposits where there is no currency risk for the depositor.

  NRIs bet on falling rupee
  EARLIER, NRI deposits had lost sheen as NRIs was preferring the remittance route   and earn a higher return on their investments in local fixed deposits, equities and   realty, through their relatives. Relatives, in turn, can send back up to $200,000 a   year.

  Interestingly, the depositor's current preference for NRE(RA) has strengthened at   time when the rupee is weakening against the dollar. Since the currency risk is taken   by the depositor, the benefits whenever the rupee is appreciating as he gets to take   back home more dollars in addition to the interest income on the deposit.

  Standard Chartered Bank has projected the local currency at Rs 45 per dollar in   2009-10. Standard Chartered Private Bank global head of NRI, Shiv Khazanchi said in   Kolkata: "We expect India's balance of payments to improve to $10 billion in 2009-10   from a negative $11 billion in 2008-09. With this, the rupee is also likely to appreciate   to Rs 45 per dollar in 2009-10."

  On the other hand, KN Dey, director, Basix Forex in Mumbai is expecting the rupee   to depreciate firmly over the next 12 months. "Given the global demand for dollar and   the promise of economic stability in the US under the new president, we wouldn't be   surprised to see rupee depreciating 10% over the next one year period. "


    Source: Economic Times