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Attracted by high interest rates in their homeland, Non-Resident Indians (NRIs) are pouring money into bank deposits.
In the financial year so far (April-July), NRIs have parked almost six times more money in deposits compared with the year-ago period.
According to Reserve Bank of India data, NRIs made deposits aggregating $7.375 billion in banks, against $1.246 billion in the year-ago period.
A break-up shows that all inflows have been into the Non-Resident (External) Rupee Accounts (NR(E)RA) deposits.
However, two other NRI deposit schemes — Foreign Currency Non-Resident (Banks) or FCNR (B) and Non-Resident Ordinary Rupee Account or NRO — have seen outflows.
In the first four months of the current financial year, NR(E)RA deposits saw robust inflows of $8.389 billion against outflows of $641 million in the year-ago period. FCNR(B) deposits have seen an outflow of $625 million against inflows of $853 million in the year-ago period.
NRO deposits too have seen outflows of $389 million against an accretion of $1.034 billion in the year-ago period.
The attractiveness of NR(E)RA deposits lies in the fact that they fetch high interest rate (for example, State Bank of India offers 8.50 per cent on deposits between one year and 10 years).
Further, the accrued interest income and balances held in the account are exempt from income-tax and wealth tax. The other two deposits schemes — FCNR(B) and NRO — do not enjoy tax exemptions, said a banker. Loans up to Rs 1 crore can be extended against security of funds held in NRE Account either to the depositors or third parties.
“Due to higher interest rate and tax exemptions, NRIs are parking money in NR(E)RA deposits. The proceeds of FCNR(B) and NRO deposits are also finding their way into NR(E)RA deposits,” said a public sector bank official.
As at July-end, NRI deposits with banks stood $62.45 billion against $53.33 billion in the year-ago period.
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