Financial Daily from THE HINDU group of publications
Tuesday, May 25, 2004
Financial Daily from THE HINDU group of publications Tuesday, May 25, 2004 |
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Money & Banking
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Fixed Deposits RBI report suggests tax on income from NRI deposits Our Bureau
Mumbai , May 24 AN RBI appointed group on external liabilities of banks has suggested that interest income from NRI deposits should be made taxable on the lines of domestic deposits consistent with current account convertibility. In its report, which was submitted to the RBI in April, the group has emphasised that external liabilities of banks need to be seen in the overall context of external debt. The group observed that, although the non-debt creating remittances have been consistently accounting for a dominant component of Non-resident Indian (NRI) inflows, the non-resident deposits have substantially increased their share in total external debt in the recent period. International liabilities of banks are now nearly double of their international assets, which is another issue that assumes importance from the systemic point of view, the group observed in its report. In this context, among its various recommendations to banks, the group has suggested, that interest rate on NRE term deposits may be changed to Libor of the corresponding maturity. Non-banking financial companies and non-financial corporates should be phased out from accepting NRI deposits and the acceptance of such deposits should be restricted only to authorised dealers. Reserve and liquidity requirements on NRI deposits may be left unaltered for the present. Non-resident Ordinary (NRO) deposits may have the nature of current or savings account only. The existing NRO term or recurring deposits may be allowed to be maintained till maturity, the group has suggested. The group has also recommended the deregulation of the present ceiling in interest on foreign currency export credit. The group, which had been set up to comprehensively review the status of external liabilities of scheduled commercial banks and to examine various policy issues arising from there, has recommended that if complete deregulation is not considered feasible, the interest rate ceiling may be raised by 50 basis points to `Libor plus 125 basis points' to ensure greater availability of export credit in foreign currency. It has also been suggested that resident foreign currency scheme (RFC) may be made non-interest bearing. The exchange earners foreign currency (EEFC) and resident foreign currency (domestic) accounts should continue to remain non-interest bearing. Bankers are of the view, that the central bank is withdrawing these concessions, in order to test the sustainability of forex inflows into the country. "At present, even with the FIIs pulling out, we have a problem of plenty. There is still too much money than we know what to do with. The RBI is comfortable with the level of reserves and beyond a point will have to keep in mind the cost of maintaining such high reserves," said a treasury head with a leading private sector bank.
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