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.
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.