RBI’s move to lure NRI funds on weak ground
The RBI efforts at the weekend to increase foreign currency inflows through deposits from non-resident Indians may come a cropper.business Updated: Nov 16, 2008 20:29 IST
The Reserve Bank of India's (RBI) efforts at the weekend to increase foreign currency inflows through deposits from non-resident Indians (NRIs) may come a cropper. The increased interest rates on NRI deposits are still considered not attractive enough to make a large number of NRIs to deposit their savings in India.
NRI deposits with banks stand now at $40.34 billion, down from $43.60 billion at the end of March 2008. The RBI on Saturday raised the interest rate ceiling on foreign currency non-resident (FCNR) deposits to one percentage point above Libor (London Inter-bank Offer Rate) from 0.25 percentage points.
The interest rate ceiling on non-resident rupee accounts has been raised to Libor plus 175 basis points (1.75 percentage point) from Libor plus 100 basis points. The benchmark six-month Libor is 2.59 per cent for US dollars and 4.31 per cent for British pound.
For pound deposits, NRIs would earn an annual interest of 5.75 per cent, which is around the same as what deposits in the UK earn.
A senior official with a public sector bank, which has significant presence overseas, said “the RBI should free the interest rates offered on NRI deposits if it expects a substantial flow of money from NRIs into India.” However, any increase in NRI deposit inflows will certainly help banks to meet the requirements of foreign currency borrowers like exporters, the official said.
Welcoming the slew of measures announced by the RBI on 15 November to ease credit in the system including enhancing forex liquidity, CII has said that the RBI has moved in the right direction, and thanked the Central Bank for being receptive to the requests being made by industry through CII.
“The CII had suggested that the interest rate cap on FCNR(B) and NRE deposits be removed and the banks be allowed to decide these rates. Therefore, the raising of the interest rates by 75 bps respectively is very welcome. However, we feel that removal of the cap is what is called for at this juncture.” said KV Kamath, president, CII.