The Indian diaspora seems to be taking a long-term view on India. They are shunning NRI deposit schemes and are sending higher amounts instead to relatives back home.

In the July-September 2007 quarter, remittances touched a new high of $10 billion. While NRIs parked only about $346 million in various bank deposit schemes.

For the fiscal year so far (April-September ’07), while there has been a net outflow of $76 million from NRI deposits, remittances, as reflected in ‘private transfers’, amounted to $18 billion, an amount that the diaspora sent back home until 3-4 years ago.

Remittances, which comprise a portion of the current account on the balance of payments and are permanent in nature, have always been substantially higher than NRI deposits, which form part of capital account and are repatriable, at any point of time in the past. But what is discerning now is the pace at which the two are growing.

Interestingly, the non-resident external (rupee account) (NRE(RA)) is an attractive proposal, when the rupee is appreciating as the foreign currency gets converted into rupees at the time of deposit. It again gets reconverted into dollar at the time of redemption. In a scenario of an appreciating rupee, one tends to get more dollars on maturity of a deposits.

According to Punjab National Bank chairman and managing director KC Chakravarty, rupee deposits fetch a higher returns than in any NRI scheme. Besides, there is a provision to convert rupee funds back to dollars up to $100,000.

Indian Overseas Bank executive director G Narayanan said at a time when stock and real estate markets are booming, it is natural that interest in NRI deposits is flat. Moreover, returns are also regulated.

NRI deposits were marketed by banks initially to shore up the country’s foreign exchange reserves. But in the past few years, with the reserves pile-up getting stronger and forex inflows adding to the liquidity management problems, the central bank is, in fact, trying to discourage such flows through caps on the returns that one can earn on such deposits, especially since the rupee started appreciating against the dollar from mid-2002 onwards.

Besides, in the present scenario, with Indian markets offering better returns on most assets, there is no incentive to convert rupee funds to dollars since returns are higher here, pointed out a banker. Data on NRI investment in other assets such as stock, real estate and other physical assets is not readily available in the public domain (unlike bank deposits).

But a recent RBI study on the use of remittances by the relatives back home shows that about 46% of the proceeds are invested in stocks, properties, bank deposits and deployed in other avenues. Only 54% of the money is used for family maintenance.

Moreover, with the US economy, which has the highest NRI population and a major source of remittances, showing signs of a slowdown, and at the same time, brightening of prospects for the Indian economy, many NRIs are coming back which is also adding to the remittances figure.

Source : India Times

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