Foreign currency non-resident (FCNR) deposits, which are foreign currency denominated deposits, have seen a slowdown due to the appreciating rupee.

This, coupled with the softening interest rates, has led to money from non-resident Indians going to areas like real estate and equity, say bankers.

As per the Report on Trend and Progress of Banking in India 2006-07, released last month, in the period April-September 2006, there was inflow of Rs 5,589 crore in the non-resident foreign currency repatriable fixed deposits.

The total outstanding non-resident foreign currency repatriable fixed deposits was Rs 67,108 crore as on March 30, 2007. But the period April-September 2007, saw an outflow of Rs 5,959 crore, from the total non-resident foreign currency repatriable fixed deposits. This means that between April and September 2007, NRIs have repatriated or sent out money from their accounts in India.

In the last one year, the rupee has appreciated by about 12 per cent against the US dollar.

Most banks issue FCNR deposits in currencies such as the dollar, pound, euro, yen, Canadian dollar and Australian dollar. As the interest rates on FCNR deposits are regulated by the RBI, banks cannot offer high rates. It is currently 75 basis points below the corresponding LIBOR.

These deposits are attractive to NRIs as there is no tax deduction at source and they can avail themselves of loans against these deposits.

“Lower deposit rates combined with the appreciation of the rupee have led to money going to other investment avenues like stock market and real estate. So, although there are inflows, not much remains in bank accounts,” said M.V. Venugopalan, Chairman and CEO, Federal Bank. The Kerala-based bank has a large share of NRI customers.

According to Manish Misra, General Manager and Head-NRI Services and Global Remittances, ICICI Bank, the appreciating rupee has had some impact. “Though in absolute terms there is no decline in deposits, may be in percentage terms there has been a slowdown. NRIs have been putting money in investment avenues like real estate and equity, because of the performance of these sectors,” he said.

Harpreet Singh, Business Director (Wealth Management, Distribution and Loans), Centurion Bank of Punjab, also agreed that there has been a slowdown in FCNR deposits in the last few months. “The interest rate differential is not much as the RBI policy does not encourage very high rates. In our experience lot of NRI customers have diverted funds into real estate, though not much to equity,” he said.

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