RBIs Restraining Arm May Deter NRIs, Fear Banks
Monday, February 05, 2007
In its efforts to correct the inflationary trends in the real estate
and equity markets, the Reserve Bank of India‘s double-edged
sword aimed at non resident Indians could cause a temporary setback
in NRE deposits, fear banks.
In its third quarterly review last week, the central bank had directed
its member banks not to issue loans to NRIs against their NRE
and FCNR (B) deposits, and also lowered the interest
rate on their deposits. The interest rates on NR(E) RA
and FCNR (B) deposits witnessed a drop by 50 basis points and 25
basis points respectively.
These steps were taken to prevent any further speculative investment
indulged in by NRIs in the Indian realty and equity market. A number
of loans that have been extended by banks to NRIs cross Rs.20 lakh,
and credit flows of this magnitude had to be curtailed, argues the
RBI.
On the other hand, genuine investors could be affected too by these
measures. Interestingly, some private banks in Kerala like the Federal
Bank, South Indian Bank and the Lord Krishna Bank had actually raised
interest rates for NRIs a month ago with a view to attracting funds
from them.
Banks are disappointed with this lowering of the interest rate
on NRI deposits, fearing
a slowdown in deposits from its most ‘high-value’ customers.
As for NRIs,
they can continue to invest in the high risk, high return equities
at the stock exchange, or go in for the low risk, low return, bank
deposits.
For financial experts, it would be a challenge to devise a product
for NRIs that would give them high returns from a sector which would
serve the nation’s larger interest as well, such as infrastructure,
while assuring a minimum level of return. Value-added options like
easy liquidity and quick withdrawal from the scheme would further
encourage money flow back to the banks.
| Related – |
| NRI Deposits of ICICI Bank Deactivated |
| Systematic Investment Plan for NRIs |
| NRI Equities, NRIs Stock Investment |
Photo: Reserve Bank Of India – RBI Mumbai by Anurag Vijay 03, licensed under CC BY-SA 4.0, via Wikimedia Commons.
