Non-resident Indians, the group that the government often turns to for investments, are cutting down deposits in Indian banks as they are lured by better yielding opportunities elsewhere in the developed world which is recovering from a recession.
Inflows through various non-resident Indian, or NRI, deposit schemes plunged 34% in nine months to December to $2.3 billion from $3.5 billion a year earlier, data from the Reserve Bank of India
The two major repatriable schemes, foreign currency non resident-banks, or FCNR(B), and non-resident external rupee accounts, or NRE (RA), witnessed a dip in inflows.
FCNR (B) deposits slumped to $843 million, from $1.5 billion a year earlier while NRE (RA) had outflows worth $54 million compared with inflows worth $329 million in the year-ago period.
Inflows through non-resident ordinary (NRO) accounts, which is essentially a non-repatriable account meant for NRIs' local use, too have slowed down, though at a slower pace to $1.5 billion, from $1.6 billion.
A senior SBI official said NRIs have renewed investment in local real estates, also causing a dip in net NRI deposit flows. SBI controls 23% of the NRI deposits market.
Interest rate on FCNR(B) and NRE (RA) is linked to the Libor, or the London interbank offered rate, which has been much lower than the local interest rates ever since most advanced economies have resorted to quantitative easing with their key policy rates at a little over 0%.
Depositors from the US or Europe typically park their money in FCNR(B), where the exchange rate risk is borne by the bank, or NRE(RA) deposits, where the exchange rate risk is borne by the depositor.
As there was no clear trend on the rupee movement vis-a-vis the dollar between April and December 2010, NRIs were seemingly avoiding NRE (RA) completely.
Although the rupee has lost approximately 1.25 paise against the greenback in April-December 2010, according to a foreign currency database website oanda.com, it did appreciate in November and December.
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