Taking the benefit of higher interest rates and a weakening rupee, non-resident Indians (NRIs) sent $11 billion (nearly Rs 60,000 crore) home into bank deposits during 2011-12, three times more than in the previous year. In 2010-11, about $3.23 billion came as NRI deposits.
The highest accretion was in the non–resident (external) rupee account, at $7.46 billion, against an outflow of $280 million in 2010-11, according to Reserve Bank of India (RBI) data.
Bank executives said a large amount moved into NRE deposits after banks raised rates in the second half of FY12. RBI had raised the ceiling on these deposits as a step to attract foreign fund flows when the rupee was rapidly losing value against other currencies.
The interest rates in India are high compared with those being offered in developed countries and in those of the Persian Gulf.
NRIs have taken the benefit from the interest rate arbitrage.
Besides, the gain from a weak rupee even after factoring in the foreign exchange risk also influenced the flows, said a senior executive with a public sector bank.
The trend for foreign currency non-resident bank (FCNR-B) deposits was different. NRIs took out a net $431 million from FCNR-B deposits in FY12, as against a net inflow of $1.33 billion in 201-11.
A senior official from a Kerala-based private bank said depositors moved part of the FCNR-B money into NRE deposits.
Last week, RBI had raised the ceiling from 125 basis points (bps) to 200 bps above the corresponding Libor/swap rates for deposits with maturity of a year to less than three years. For deposits having three to five years of maturity, the ceiling was raised to 300 bps from 125 bps.
A senior State Bank of India (SBI) official said the change was driven more by the need to bring in stable foreign money. NRIs — especially blue collar workers and information technology professionals — who are retail customers, are expected to respond the most to these rate revisions.
SBI’s NRI deposit base is about $11 bn.
NRI deposits in the banking system were $57.91 billion at the end of March, up from $51.68 billion a year before.