Banks in Kerala are flooded with inert NRI deposits from the Gulf. The government does not know how to utilise them!

For more than 20 years now, the Gulf-settled Malayalees have been 'have-money-will-spend' types. However, while they earned a lot, they never invested wisely. Many built fabulous concrete houses, the dream of many a family.

Constructing houses, booking apartments, buying properties, lands and gold and investing in real estate have been the traditional investment avenues of the Gulf migrants.

But in the last few years, there has been a remarkable change in the consumption pattern in the exclusive Gulf pockets across the state. Concrete, marbled bungalows that distinguish Gulf Malayalee identity flank the National Highway 47 that runs through Kerala. But their construction is incomplete.

“Those houses will be never built to completion and perfection because suddenly many Gulf Malayalees have realised that it was foolish of them to construct huge homes,” says K Haridas, a prominent builder in Kochi.

Builders like Haridas have been badly hit: in the last few years, construction activity has shrunk almost by half.

The other favoured investment option of the Gulf employees was acquiring land. But in the last four years, prices of land have stagnated in the state. Official figures indicate that land deals in Kerala are down by nearly 45 per cent.

The dismal scenario has affected real estate scene too. Supply outstrips demand: apartments and shopping complexes have no buyers.

The Gulf returnees no longer indulge in ostentatious display of wealth. Belt-tightening is the millennium mantra for these once-prosperous people. Driven by the realisation that big money days are a thing of the past, they are seeking to secure their future by depositing whatever that remains of their earnings at the 'safest destination' -- the banks.

“Yes, these insecure people are tucking away their money in banks. That is the reason why the commercial banks in Kerala now flush with cash,” says P K Karunan, manager of a private bank in Kochi.

In the last one year, the government led by the Left Democratic Front and the commercial banks in the state have been facing a problem of plenty as expat remittances touched an all-time high of Rs 142.81 billion by the middle of 1999.

Although NRI deposits in the banks have modestly increased in the last few years, in 1998 and 1999 there has been a massive influx of expat funds. The NRI deposits in the state totalled Rs 68.86 billion in 1995, Rs 81.03 billion in 1996, Rs 101.78 billion in 1997 and Rs 127.35 billion in 1998.

Banking officials point out that the crash in speculative investment avenues like stock market, real estate and private financing firms are the principal reasons that contributed to the enhancement of bank deposits.

There is another pressing reason why the Gulf NRIs are running to the commercial banks with their monthly earnings. Nearly 80 per cent the 'Gulf Malayalees' do not earn enough to make any investment in real estates or businesses here. So the best option for them appears to be to deposit their savings in banks.

According to official statistics, close to 80 per cent of Keralites working in Saudi Arabia earn less than 1000 Saudi riyals (about Rs 11,610) a month.

“I think the Gulf Malayalees are depositing money in banks for two reasons. First, the fear that they would one day return to the state jobless. Second, there are not many other investment options in an industry-starved state like Kerala,” points out K K Venugopal, an economic consultant, who is now advising a host of NRI businessmen to set up industrial projects Kerala.

But this unprecedented influx of deposits from NRIs in commercial banks in the industry-starved state has forced the government to set up an NRI Industrial Investment Corporation to effectively channelise the expat funds.

The government has entrusted I-Kin, a joint venture between ICICI and the Kerala Industrial Infrastructure Development Corporation (Kinfra) to conduct a detailed feasibility study on the proposed NRI Industrial Investment Corporation.

I-Kin, a 76:24 joint venture between ICCI and Kinfra, will also advise the government on how to productively utilise the burgeoning NRI deposits for infrastructure and developmental projects in the state.

The whopping NRI deposits, and the lack of any infrastructure and investment projects to divert these funds, for productive use have put the banks in Kerala into a low credit-deposit ratio.

While the NRI base accounts for more than 50 per cent of bank deposits, the absence of any industrial promotion led to the state’s C-D ratio to remain a stagnant 43.06 per cent as on March 31, 1999.

Thus, the Reserve Bank of India has asked the banks in the state to achieve a C-D ratio of 50 per cent in the current financial year.

However, the state government accuses that banks alone are to be blamed for the poor C-D ratio as they are often reluctant to lend the NRI deposits for projects. But banks blame that there is an acute government apathy in planning and launching viable industrial projects to utilise the expat funds.

While the row between the government and the banks continues, officials concede that the maximum utilisation of the Rs 142.81 billion NRI deposits now will depend on the viability of various industrial and infrastructure projects that I-Kin would recommend to the government.
Concluded

Part I: A dream fizzles out

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Oct 1998: Flow of NRI deposits peters to a trickle

Oct 1999: Kerala moots sensible investment of inert NRI deposits

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