Non-resident Indians (NRIs) are keeping faith with the returns their banks back home are giving them. In the first eleven months of FY13, NRI deposits in the banking system rose 37 per cent (by $13.379 billion against $9.733 billion in the year-ago period). The NRI deposit accretion was solely in the non-resident (external) rupee account or NRE account. In the reporting period, NRE deposits soared by a whopping 161 per cent at $15.271 billion ($5.854 billion in the year-ago period). NRIs may be pouring money into the NRE deposits because they fetch handsome returns (for example, SBI is offering 8.75 per cent interest on NRE deposits of 1-10 years). Another reason why NRIs may be parking money in NRE deposits is that they may be taking a view that the rupee will appreciate down the line, thereby enabling them to make gains at the time when the deposit matures, said a senior public sector bank official.
For example, if NRIs place NRE deposits now then the dollars they remit will fetch them Rs 54.50 a dollar. However, if the rupee appreciates to (say) 50 to the dollar at the time of maturity of the deposit (say two years down the line) then the depositor makes a gain of Rs 4.50 a dollar. Besides, the possible exchange rate gain, he earns interest on the deposit. The other two components of NRI deposits — Foreign Currency (Non-Resident) or FCNR Account and Non-Resident Ordinary (NRO) Rupee Account — have seen outflows. NRO deposits saw an outflow of $1.732 billion (against an accretion of $3.926 billion). FCNR deposits declined $160 million (against a decline of $48 million).
– Hindu Business Line
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