The Hindu Business Line : Bank deposits losing appeal for NRIs

The NRI deposits of South Indian Bank have taken a hit of Rs 160 crore, falling from Rs 2,845 crore as on March 2004 to Rs 2,685 crore during December.

In the case of Catholic Syrian Bank, NRI deposits fell by Rs 96 crore, from Rs 1,158 crore as on March 2004 to Rs 1,062 crore as on November.

The trends in most of the other banks are quite similar, bankers said.

It has been a combination of factors that has resulted in the erosion in the NRI deposits. Mr N.R. Achan, Chairman of Catholic Syrian Bank, said that the continuing threat of income-tax on interest income earned from bank deposits has forced the NRIs to defer their savings programme with Indian banks.

Some of them have not renewed their accounts that have matured in the recent past.

He said that as long as the threat of income-tax persists, the NRIs would continue to defer their savings programmes in India.

The sharp fall in interest rates, especially for the NRI deposits, has been another principal factor, Mr V.A. Joseph, Executive Director of South Indian Bank, said.

With the current spurt in domestic deposit rates, there is every possibility that some of the NRI deposits which have matured in the recent past could have been converted into domestic deposits in the names of the NRIs' close relatives, he pointed out.

While erosions have been reported in the NRI deposits, there has been no slowdown in remittances, the bankers said.

While increasing amounts seem to be getting converted to resident deposits, others have taken to other avenues offering even higher returns.

The spurt in real estate prices in the recent past has also attracted NRI investments into the sector. And all these diversions have been at the cost of NRI bank deposits, the bankers said.

Most NRIs are not finding the time most opportune for returning to NRI deposits. With the Indian rupee strengthening against the dollar, the exchange rate is also not in favour of the NRIs at the moment. This is also likely to force the NRI to defer his investment options in India. All in all, the bankers said that it has not been happy year for the NRIs.Moreover, the indispensability of the NRIs in building foreign exchange reserves has also been undermined, the bankers said.

Despite the erosion in NRI deposits, the foreign exchange reserves of the country continue to grow smartly, thanks to heavy inflow from the FIIs.