• Investment World
• eWorld
• Catalyst
• Mentor
• Life
• Canvas
• Praxis
• Urban Pulse
• Brand Quest

Vimala Vasan

ABU DHABI, Jan. 7

FEARS of an impending war in Iraq and mid-term plans by Gulf States to nationalise the workforce, coupled with attractive interest rates on Indian deposits, have pushed up Gulf non-resident Indian (NRI) remittances, with a significant surge witnessed particularly in NRE deposits, according to officials in the local banking industry.

Bank officials and NRIs in the United Arab Emirates said the decline in interest rates on dollar deposits was driving NRIs to park their funds in NRE (non-resident repatriable rupee) deposits. The upswing in NRI deposits along with quicker repatriation of export proceeds (since the rupee is appreciating) and revaluation of gold reserves are said to be among the reasons for booming forex reserves, which crossed $70 billion last week.

An official at the Emirates India International Exchange said NRI remittances, which have been robust over the last few months, could be seen as more of a flight to safety. The shift in approach, with the emphasis on security, comes in the wake of war clouds in the region as well as the anticipated loss of NRI jobs.

Most of the Gulf States have embarked on short- and medium-term nationalisation measures, which seek to employ more Gulf nationals in a bid to correct the demographic imbalance that is currently in favour of expatriates.

A bank official at a leading local bank in Abu Dhabi said there was also a shift in dollar funds by NRIs who had lost investments in the US market. They have re-directed these funds to Indian deposits. "NRIs also find keeping funds in Indian instruments convenient in terms of legal aspects," he added.

FCNR deposits have taken a beating in recent months, with most NRIs putting fresh funds and renewing matured dollar deposits into NRE deposits in view of the higher interest rates on offer. A bank official pointed out that with interest rates ranging from 4.75 to 6.5 per cent and sometimes even 7 per cent on offer by some MNC banks, investors find this a suitable investment proposition in the current climate. Even if the rupee depreciates by 2 per cent in a year and repatriation costs are taken into consideration, investors still stand to gain by 1 per cent or more, the official said.

Mr Khanna, a long-term resident of Abu Dhabi, said he was disappointed with the meagre 1.25 per cent offered by banks for one-year FCNR deposits. "The rupee is getting stronger day by day and some banks like Mashreq Bank are offering 6.50 per cent for NRE deposits. I have decided to put fresh funds in rupee deposits and also liquidate my dollar deposits at the time of maturity. Many people I know are of the same view. It is also safer to put our money in India given the general global situation," he said.

Ms Kala Krishhan, a school teacher in Abu Dhabi, said her husband and she preferred to keep their savings in dollars. This was usually in Indian dollar deposits like FCNRs or in term bonds issued by Indian banks. "We are putting some savings in NRE deposits though I don't think I would save in rupees in the long term," she said.

She felt the capital market was unattractive while most people would not want to go in for more than one or two real estate investments in India.

A manager for a local company said around 40 per cent of savings by NRIs he knows are now in Indian rupee deposits.

Though the positive sentiment about the Indian rupee appears to dominate savings patterns by NRIs here, FCNR deposits in euro have shown an increase according to another bank official. The FCNR rate in euro is around 2.80 per cent (per annum) compared with 1.30 per cent for a dollar deposit. The euro gained strength in the last month against the dollar. "This has encouraged some investors to put funds in FCNR in euro currency. There is also a lot of optimism on the euro gaining strength in the future," he said.

Send this article to Friends by E-Mail
Comment on this article to BLFeedback@thehindu.co.in

Stories in this Section
Clearing Corpn set to launch money market platform

Copyright © 2003, The Hindu Business Line. Republication or redissemination of the contents of this screen are expressly prohibited without the written consent of The Hindu Business Line