Sliding rupee works to the advantage of Indian migrants

New Delhi/Mumbai/Bangalore: Shariff P.A., 29, is a typical migrant from Kerala working in Saudi Arabia. He repatriates a fairly substantial part of his salary back home to Nilambur to support his family—wife, two children and parents. For remittance-dependent Kerala and people like Shariff who’re sending the money, the slump in the rupee has been a boon.

While the depreciation of the Indian rupee has translated into more money reaching his family, rising prices are eroding some of the advantage, Shariff said.

“Since I began to work in Saudi in 2009, I have had to send more money to cover expenses due to inflation. I send around 700-1,000 Saudi riyals more now as compared with 2009,” he said.

The rupee’s depreciation has helped in covering the rising costs, but only barely, he said. Still, those dependent on remittances are better off in that respect than those earning a local salary.

The rupee’s depreciation against the dollar along with the deregulation in interest rates on non-resident (external), or NRE, rupee deposits by the Reserve Bank of India (RBI) has led to a surge in remittances, bankers said. They expect inflows to increase even more once the rupee’s volatility ends.

Remittances account for nearly 31% of Kerala’s net domestic product—nearly 2.28 million emigrants deposited Rs 49,695 crore in 2011, according to a study by the Centre for Development Studies in Thiruvananthapuram.

“Gulf migrants are really happy—they are getting a 10-15% hike. Anyone sending Rs 10,000 per month now is able to send Rs 2,000 more,” said M.B. Reddy, vice-president of the Migrants Rights Council in Hyderabad.

Some are actively taking advantage of the exchange rate by sending more money than usual, he said.

“Even white-collar workers are sending more money—many are taking loans from their employers, and if they have any savings in their bank account, they are sending money immediately to India.”

The rupee, which touched a record low of 56.52 last week, has depreciated by more than 23% against the US currency in the last one year. In May alone, the rupee declined by around 6.51% on account of the uncertainty in global markets. The rupee has also weakened against other currencies. For instance, it has fallen by more than 7% against the Saudi riyal in the last two months. It was trading on Monday at 14.8 to a Saudi riyal against 13.7 in April.

Money sent by workers has seen a steady increase in the past one year, according to the RBI data. Net inflows on account of such remittances amounted to $8 billion in the quarter ended December, up 20% from the year-ago period.

A senior State Bank of India official who spoke on condition of anonymity said the bank has seen a surge in NRE deposits in the past few months on account of the higher interest rates and the rupee’s weakness.

“In the month of April alone, we received Rs 4,000 crore as NRE deposits as compared with around Rs 12,000 crore in the entire 2011-12 fiscal,” he said. “The interest rates on NRE deposits are around 8.75-9%, much higher than the rates prevailing in other countries. Also, a weaker rupee means more money in the hands of customers for every unit of foreign currency.”

Non-resident Indian (NRI) depositors are currently getting more than 9% interest following deregulation, much higher than the 3-4% they were getting earlier. Banks are allowed to fix their own rate, but this shouldn’t be more than what’s offered to domestic customers. NRE deposit rates were earlier linked to the London interbank offered rate (Libor), which is an international benchmark for interbank lending.

HDFC Bank Ltd has seen a rapid increase in flows following deregulation, said Abhay Aima, group head (equities, private banking, NRI and third-party products).

“We got Rs 3,200 crore in January-March, which was much higher than last year. In the last month or so, there has been some slowdown in inflows because of the volatility in the rupee, but we expect inflows to continue rising,” Aima said.

He added that some high networth clients are hedging their currency risk when investing in NRE deposits.

“They buy forward contracts to hedge their currency risk because the currency is volatile. Once the rupee stabilizes, the flows will quicken,” Aima said.

Kerala-based Federal Bank Ltd has seen its NRE deposit portfolio increase three times to Rs 3,300 crore from Rs 1,100 crore following deregulation, said Ashutosh Khajuria, president (treasury).

“We get a lot of inflows from people working in the Gulf. Most of this money is remitted for daily expenses of their family in India and is not affected by the currency movement. Only 10% or 15% is converted into deposits,” Khajuria said.

remya.n@livemint.com

Malia Politzer contributed to this story.

This is the last in a five-part series on living with a weak rupee.

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