The Hindu Business Line : NRIs prefer savings a/c to bank deposits

THERE has been a strange shift from NRI fixed deposits to NRI savings bank deposits in the recent past. In the case of Federal Bank, while the NRI savings bank deposits grew 50 per cent last year, the growth in NRI fixed deposits was just 9.75 per cent.

Explaining this, Mr K.P. Padmakumar, Chairman of Federal Bank, said: "While the interest rates for NRI fixed deposits have bottomed out to 2.70 per cent, the returns from NRI savings bank account remain attractive at 3.5 per cent. With the higher liquidity and better returns from savings bank account, the average NRI has been averse to locking up his funds in fixed deposits."

Even as interest rates for NRI deposits continue to plunge, the deluge of remittances into the country continues to surge. "The wary NRI is taking advance cover before the value of the dollar plunges any further," Mr Padmakumar explained.

And, not all these remittances get translated into NRI deposits. There has been a diversion into resident deposits in the names of close relatives, which command better returns. Remittances are also diverted into post-office savings where the returns are even better. Investments into small plantation holdings and real estate are the third option that the NRIs have been exploring in the recent past.

In the case of Federal Bank, the pace of growth in NRI deposits, which was hovering over 20 per cent earlier, slowed down to 15 per cent in 2002-03 and is expected to plunge to 11 per cent last year. And the NRI is not amused.

"The plunge in interest rates from 20 per cent to the current lows of 2.70 per cent has brought distress to the blue collar and labour class NRIs working in the Gulf. He is left with no option but to remit his money as fast he earns it, before the value of the dollar plunges any further. The anxiety to convert the dollars into rupees is quite palpable," Mr R.P. Chacko, an NRI working with an airline company in Dubai, said.

And several banks have been put to difficulties of another kind. The last tranche of high cost NRI deposits, which yield as much as 12 per cent is coming up for renewal. Re-pricing it to as low as 2.70 per cent yield is proving to be a really Herculean task, some of the bankers admitted.

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