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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. 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
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