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C. J. Punnathara

Kochi, Jan. 8 Remittances into the country have grown significantly during the past quarter on the back of a weak rupee and a stable banking industry.

“Indian and Spanish banks are among the best regulated and sound banking institutions in the world, while higher interest rates as well as weak Indian rupee have been propelling NRIs to remit more money to the country,” Mr K S Harshan, Executive Director of Federal Bank, said. NRI deposits in Federal Bank have grown by over 20 per cent during the last three months.

However, the growth in NRI deposits do not fully reflect the accelerated pace of remittances. A good portion of the remittances go into alternative avenues of investment or for consumption. “But with the high returns offered to domestic deposits, several NRIs have been parking their savings in Non-Resident Ordinary deposits which offer 10-11 per cent returns. Most often, the stream of remittances does not get reflected as NRI deposits when they are converted into NRO accounts,” Dr V. A. Joseph, Chairman of South Indian Bank said.

This conversion into NRO deposits happen despite the income tax that these deposits attract on interest income. The confidence of several US and European banks have been deeply eroded in the wake of the sub-prime crisis. Similarly, the confidence in some Gulf-based banks has also been weakened due to their strong financial and management linkages with the Western banks, senior sources in the banking industry said. This has also helped fuel the increase in remittances and NRI deposits. Total remittances for the last financial year had touched $ 41 billion.

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