NRE deposits up after deregulation

Banks have witnessed a sharp growth in deposits from non-resident Indians (NRIs) in the past month, thanks to higher interest rates and a weak rupee.

Bankers say heavy inflows were seen in the non-resident external rupee (NRE) accounts after the Reserve Bank of India (RBI) deregulated the rates on these in December. The country’s largest lender, State Bank of India, saw NRE deposits rise by Rs 1,400 crore. Bank of Baroda saw an increase of 10 per cent, or Rs 500 crore, in these deposits in the past two months.

“We had launched a campaign in November to increase NRI deposits. However, much growth was seen after December, when the RBI deregulated interest rates,” said R K Bakshi, executive director, Bank of Baroda. Bank of India CMD Alok Misra also said remittances had gone up, though it was too early to give numbers.

However, the growth came at the cost of depletion in the foreign currency non-resident (FCNR) accounts. According to SBI’s Chaudhuri, Rs 400 crore was transferred from FCNR accounts to NRE accounts. “We are encouraging customers to switch accounts, as NRE term deposits now offer higher rates,” he said.

Since deregulation, banks have increased interest rates on NRE term deposits by 500-600 basis points. While the FCNR rates are 2-2.5 per cent, NRE rates are around 9.5 per cent.

RBI Governor D Subbarao said the inflows were more than expected. “Banks say there is an increase in NRE deposits, as well as remittances. However, we need to see if it is a one-time flow or will sustain,” he said.

According to RBI, inflows were $3.4 billion in August-November, the period when the rupee depreciated by around 20 per cent against the dollar. On December 16, RBI had deregulated interest rates on NRE deposits, to attract foreign funds.