NRE deposits jump on rupee,high rates

A combination of depreciated rupee and hike in the non-resident rupee account deposit rates by banks from around 3.8 per cent to up to 9.5 per cent in December

A combination of depreciated rupee and hike in the non-resident (external) rupee account (NRE) deposit rates by banks from around 3.8 per cent to up to 9.5 per cent in December resulted into a sharp rise in the deposits in the NRE accounts as it reached $3.47 billion (Rs 17,350 crore) in the period between April and December 2011. The net addition in the month of December stood at $658 million as banks hiked interest rate offering after RBIs deregulation on December 16,according to data released by the central bank on NRE deposits.

The net NRE deposits in 2010-11 stood at a (-)280 million dollars as against $3.47 billion in the first nine month of the fiscal 2012. While in the months of November and December it stood at $898 million and $658 million respectively,bankers say that January numbers too will be strong as the high interest rates continues to draw strong flows in January

High inflows have been a result of the combination of good conversion rates because of depreciated rupee and high interest rates that are on offer now after the deregulation. We have witnessed strong flows even in January, said KVS Manian,president-consumer banking,Kotak Mahindra Bank.

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While a lot of fresh money is coming,money is also moving from the FCNR(B) (Foreign currency non-resident) accounts to NRE accounts as a result of a good conversion rates that were available in the previous quarter.

According to a government official who did not wish to be named,RBI,in its bankers meet on January 24,at the third quarter monetary policy review,asked them on the reason for the jump in the NRE deposits and several bankers argued that a lot of money is moving from FCNR(B) accounts to NRE accounts.

NRE accounts are one where non-resident Indians can park their overseas savings that are remitted to India by converting into rupee and RBI in December deregulated the interest rates offered by banks in these accounts as a move to increase the inflow and stabilise rupee. Post the deregulation banks raised the interest rate offerings on these accounts from around 3.8 per cent to up to 9.5 per cent. Bankers say that while the rupee is now trading below 50 against a dollar,the high interest rates on offer will still continue to attract inflows.

The conversion rates are still better than what they were six months ago and the interest rates continue to remain attractive,hence the flows are expected to remain strong, said Manian.

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