New Delhi: The flow of foreign exchange deposits in 2008-09 by non-resident Indians to banks has risen by almost 22 times over the previous year to $3.99 billion (Rs19,671 crore) as the Reserve Bank of India (RBI) increased interest rate ceilings during the year.
“We were looking at interest rate differential (between developed countries and India) actually supporting NRI inflows. It could once again form an important source of dollar inflows,” said Shubada Rao, chief economist, Yes Bank Ltd.
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India’s foreign exchange reserves on 1 May stood at $251.70 billion, according to RBI data. While the central bank increased interest rate ceilings on NRI deposits to encourage inflows, central banks in developed countries cut rates to combat economic recession.
RBI increased interest rate ceiling on foreign-currency, non-resident accounts, and non-resident external rupee accounts on three separate occasions in September, October and November as part of measures to combat the negative impact of the global financial meltdown. The increase in NRI deposits has come primarily through the second type of accounts where depositors bear the currency risk.
In 2008-09, these deposits increased a little over 20 times to $2.46 billion compared with the previous year. A large part of the inflows came between September 2008 and March 2009, according to RBI data.
“The interest rate differential advantage is outweighing currency depreciation,” Rao said. “The broader currency outlook is it’s to appreciate.”
The other type of account where the NRI deposits have increased is the non-resident ordinary rupee account, which is a type of non-repatriable deposit account for NRIs.
In 2008-09, these deposits increased 136% year-on-year to $2.43 billion. The monthly pattern of inflows here mirrored that of external rupee accounts.
NRIs sent back more money in the second half of the fiscal after international credit markets froze.
The only NRI deposit account where RBI’s measure did not have a significant impact was the foreign currency, non-resident accounts, where banks bear the interest rate risk of foreign currency deposits. These deposits saw an outflow of $897 million in 2008-09 compared with an outflow of $960 million the previous year.
Graphics by Ahmed Raza Khan / Mint