The Hindu Business Line : More NRI remittances likely

The upward revision of interest rates on NRE rupee deposits for one- to three-year period by 25 basis points is expected to increase remittances into the country and shore up NRI deposits, several bankers said. NRE deposits will henceforth command one per cent interest above LIBOR rates.

"The earlier returns on NRE deposits were not competitive and had led to a slump in NRI deposits, which is expected to be reversed with the hike in interest rates announced in the latest credit policy. At one per cent above LIBOR, most NRIs should find the returns attractive," Mr M. Venugopalan, Chairman of Federal Bank, said.

The growth of advances by close to 30 per cent even as deposits continued to grow at around 16 per cent had created a liquidity crunch.

Good for credit portfolio

The renewed interest by NRIs would help to curb the growing asset-liability mismatch in the banking sector.

Increased remittances from NRIs are likely to be converted into NRE deposits, from which banks could expand its credit portfolio and create better assets.

While the recent increase in interest rates for FCNR deposits is expected to have a positive impact, Mr Venugopalan said that it would take couple of months before its impact can be properly assessed and evaluated.

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