At a time when the government is looking for ways to attract foreign fund inflow,the spike in non-resident (external) rupee (NRE) deposit rates has brought some relief with non-resident Indians (NRIs) routing their savings substantially into NRE accounts.
While NRI fund inflow into NRE deposits in the month of January hit a 10-year high of $1.56 billion (over Rs 7,800 crore),the total inflow for FY12 till January stood at $5.09 billion (around Rs 25,000 crore).
With data for February and March still to come,this is the highest-ever inflow in the NRE account in a financial year after FY03 when the net inflow stood at $6.19 billion.
NRE accounts are where NRIs can park their overseas savings that are remitted to India by converting into rupee.
The surge in inflow can be primarily attributed to the move taken by the Reserve Bank of India in December 2011 to deregulate interest rates on NRE deposits,following which banks raised their offering on such deposits from around 3.8 per cent to up to 9.5 per cent. The depreciation of rupee during the recent times also played a crucial role.
The rupee was trading at over 50 against a dollar till January,pushing investors to route their investment into rupee accounts to take the advantage.
The RBIs move has worked well as it has provided the much needed stability to rupee and has also helped in providing liquidity to the system, said KVS Manian,president-consumer banking,Kotak Mahindra Bank,which has seen its NRE term deposits quadruple in the last four months. The flows in the month of February and even in the month of March are still strong, said Manian.
Diwakar Gupta,MD and CFO,State Bank of India said,At the moment the government needs foreign fund inflow and will welcome it in any form.
Economists feel that even though this money is debt creating there is nothing to worry about since the composition of money has changed post liberalisation and also this is a stable source of funds.
It is something like the Resurgent India Bonds which were stable source of funds and India needs money for the long term. This money is coming both because of pull and push factors and it is good, said Brinda Jagirdar,head of economic research at State Bank of India.