It is after a year that non-resident Indians are finding India an attractive destination for parking funds as banks have witnessed inflow of NRI deposits to the tune of $200-300 million in the months of June and July. This is against net NRI outflows during the last three to four quarters.
Bankers attribute the growth in NRI deposits to the clarification issued by the ministry that these deposits will not be taxed and the interest rate differential.
Some major nationalised banks such as the State Bank of India and Bank of India have even seen NRI deposits growing by 7-8 per cent. While trade deficit having almost doubled over last year, capital inflows in the form of NRI deposits is a welcome development, said bankers.
Most of the accretion has been in foreign currency denominated NRI deposits. This is a result of an increase in the international interest rate benchmark -- London Interbank Bid and Offer Rate.
NRI deposits accrue both in terms of rupee denominated deposits and foreign currency deposits.
Even though the spread on NRI deposits has been increased to 50 basis points from nil in the November credit policy, the Libor itself was ruling very low then at 1.5-2 per cent.
Today with Libor at 3.7-3.8 per cent for six months, which is the benchmark for NRI deposits, a spread of 50 basis point offers Indian expats 4.2-4.3 per cent returns for a period of 3-5 years, said a banker.
With rates coming down in the Eurozone and the UK, the 10-year bond yield in the US is ruling at 4.06-4.07 per cent. There was a net outflow of NRI deposits to the tune of $1.1 billion in FY05, against an increase of $3.6 billion in FY04.
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