NRI deposits dip 33% due to rate ceiling, weak dollar

Non-resident Indian deposits which were rising for the last several quarters have fallen during the quarter April-June 2007.

Non-resident Indian deposits which were rising for the last several quarters have fallen during the quarter April-June 2007. According to the Reserve Bank of India (RBI), NRI deposits dipped by over $400 million during the quarter as against an inflow of $1.2 billion in the same period of last year. This follows the reduction in interest rate ceiling in FCNR (B) and NRE deposits during the quarter. NRIs were pumping money into India due to high interest rate differential abroad and here. “The cut in rate ceiling has made NRI deposits unattractive,” said a banking source.

Though the NRI money inflow has fallen, total accumulated NRI deposits at $42.6 billion at end-June 2007, showed an increase of $1.4 billion. Said RBI, “despite an outflow from NRI deposits, the above increase was on account of valuation gain.” The rupee has appreciated against the dollar and the US currency fell abroad against other world currencies. The outstanding NRO deposits amounted to $1,616 million at end-March 2007 and $1,846 million at end-June 2007.

With US Fed hiking the rates, it remains to be seen whether NRIs will bring in funds to India. Apart from Gulf regions, the huge NRI population in the US, the UK and Far East countries contribute to the flow. According to RBI figures, valuation gain has been a major source of accretion to the foreign exchange reserves. “Valuation gain, reflecting the appreciation of major currencies against the US dollar, accounted for an increase of $3.0 billion in total reserves during the Q1 of 2007-08 as against a valuation gain of $4.9 billion during the corresponding period of previous year,” the RBI said.

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The foreign exchange reserves increased by an amount of $14.2 billion during April-June 2007 including the valuation effects against an increase of $11.3 billion during April-June 2006. Bankers are expecting a dip in inflows in external commercial borrowings (ECBs) in the ongoing quarter as the government has tightened the norms in a bid to check the inflows and appreciation of the rupee. In the April-June quarter, ECB inflows rose to $7 billion as against $4 billion in the same quarter of the last year. According to an RBI study, ECBs contributed around 63 per cent of the increase in total external debt (currently at $165.4 billion), followed by NRI deposits (15.6 per cent) and trade credit up to one year maturity, excluding the suppliers’ credit up to 180 days (12 per cent). The foreign exchange reserves increased by an amount of $14.2 billion during April-June 2007 including the valuation effects against an increase of $11.3 billion during April-June 2006.

MONEY FLOW

• NRI deposit inflow fall by $400 mn in April-June quarter

• Cut in rate ceiling led to the fall

• But valuation gain pushes up total NRI deposits

• ECB inflow which rose in the last quarter may dip

• $14.2 bn accretion to forex in April-June