NRI Deposits face the odds as Interest Rates Drop

NRI deposits have received a setback following a drop in the interest rate and the weakening of the dollar against the Indian rupee.

The Reserve Bank of India has conveyed a fall of 33% in NRI deposits during the 1st quarter of the financial year, amounting to a drop of almost USD 400 million,.

The cut in the interest rates on FCNR (B) and NRE deposits nullified
the NRI’s reasons for saving in India.

However, though the NRI fund inflow dropped, total NRI deposits have increased by USD 1.4 billion, owing to the gain in valuation.

NRO deposits outstanding on 31st March 2007 stood at USD 1,616 million
and at USD 1,846 million on 30th June, 2007. The latest move by the US
Federal Reserve to hike the rates may have a positive impact on NRIs turning
to Indian deposit schemes yet again.

The RBI has pinned down valuation gain as one of the main reasons for
the build-up of foreign exchange reserves in India.

USD 3 billion was
added to the total reserves in the 1st quarter of 2007-08, in contrast
to USD 4.9 billion during the same period in 2006-07.

Between April and June 2007, forex reserves increased by USD 14.2 billion,
External Commercial Borrowings have also come down following the government’s curbs on such funding.

ECBs at USD 165.4 billion constitute 63% of the increase in the external
debt, followed by NRI deposits, which account for another 15.6%. Trade
credit upto a year accounts for 12%.