The flow of money from Indians abroad into bank deposits remained robust in January 2012, despite an appreciation in the rupee value against the US dollar in the month.
Non-resident Indians (NRIs) brought $1.56 billion for parking in non-resident external (NRE) deposits in January, more than double the money ($ 718 million) that came in December, Reserve Bank of India data showed.
Senior bank officials said though the rupee gained strength against the dollar, it still remained weak. Plus, the difference in the interest rates prevailing abroad and in domestic market remain large. The combined effect was the steady rise in flows of NRI money in bank deposits. Some money also moved from FCNR (B) deposits to NRE accounts.
Rupee moved up to 49.8 at the end of January from 53.3 at the beginning of the calendar year.
Till a cap was maintained on NRE deposit rates, these rates were ruling at 3.82-3.85 per cent. However, after deregulation, banks began to offer rates on par with domestic term deposits - 9.25 per cent or more. The dollar deposit rates are well below the four-five per cent mark in the developed markets.
R K Bakshi, executive director, Bank of Baroda, said money (NRI funds) will continue to come in till the interest rate arbitrage between the Indian market and markets abroad continues. Rates will remain attractive even after factoring in the currency risk.
The inflows into NRE deposits in April 2011-January 2012 were $ 5.09 billion, as against an outflow of $ 119 million in April 2010-January 2011. The outstanding amount in NRE deposits was $28.89 billion in January 2011.
"There were a few factors that led to growth in NRE deposits. The interest rates were deregulated, the rupee remained weak, and there was a one-time gush of money waiting on the sidelines. Going forward, I think the incremental growth in these deposits will slow," said Shyam Srinivasan, managing director & chief executive, Federal Bank.
The NRI deposits flows in April-January were $8.97 billion. The outstanding NRI deposits stood at $ 46.96 billion at end of January 2012.