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Monday, Jan 07, 2002

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Pvt banks to knock at NRI doors for funds

Shaji Vikraman

AFTER the initial phase of growth at home, especially in the metros, leading private banks are now in process of firming up aggressive plans to raise money from overseas Indians. Among those hoping to get a slice of the cake in the huge NRI deposits segment is ICICI Bank, which appears to be the first of the block, armed with an approval for a representative office in West Asia. Others, such as UTI Bank, are close on its heels.

In the past, these banks ignored this segment, which offers the potential to raise substantial amount of money. With inflows from non-resident Indians showing no signs of abatement given the current southward movement of interest rates abroad, it make sense to mobilise fund from this segment.

NRIs have been pouring funds over the last several years into various deposit schemes designed for them. In 2000-01 net inflows from NRIs were higher at $2.3 billion compared to $1.54 billion in the previous year. Much of it flowed to the FCNR (B) scheme, which, at the end of March 2001, had an outstanding balance of $9.07 billion, followed by other schemes such as NR (E) RA and NR (NR) RD.

Even after hedging for the currency exposure and factoring in the spread, this form of borrowing is quite competitive, bankers reckon. The new focus on mobilisation of foreign currency funds from this segment primarily in West Asia, UK and the US, which has a large Indian population, is also owing to the demand for foreign exchange resources from mid-size corporates and small firms.

There is an appetite for funds from this segment of industry, say bankers. Over four years ago, State Bank of India, which has a large chunk of NRI deposit, used its FCNR (B) funds to on-lend to corporates at a time when foreign currency funds were costlier.

Opening up of representative offices to start with by some of the private sector banks is also seen as an opportunity by these banks to sell some of their products. HDFC has been trying to sell its housing loan products to NRIs. So is HUDCO.

Financial institutions do not appear to be too far behind. ICICI, over a year ago, had positioned one of its top management staff abroad, ostensibly to scout for new business opportunities and to liaison with its international clients. On the other hand, like a broken record, IDBI keeps repeatedly raising the demand for setting up a representative office abroad. The proposal, which was first submitted well over six years ago, has been put on ice by the powers-that-be.

For these babus, even approving the post of a Deputy Managing Director in IDBI seems to be an achievement, when it could be routine affair for most organisations.

Little wonder there is now some demand emerging for bringing about accountability, taking into account the opportunity cost of not taking decisions or delaying key decisions on policy issues in the financial sector. Unit Trust of India and IDBI could well be examples in this regard.

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