Record NRI Deposits Just not Enough to Stem Re Fall

Deposits under various special NRI schemes climb to $3.213 billion in April       Non-resident Indians' bank deposits have risen to record levels in April as high interest rates — more than double the yields offered in developed countries — have made investing here highly attractive. However, being just a drop in the ocean, the inflows couldn't do much to shore up the rupee's value.  Deposits under various special NRI schemes were at $3.213 billion in April, eight times more than the corresponding period last year; but the country needs to draw fresh foreign investment urgently to lift the sagging currency. NRI inflows barely cover a quarter of the country's trade deficit.  April's was the largest net deposit addition by NRIs in a single month, while foreign institutional investors withdrew nearly $1 billion from risky local assets in a flight to safety amid fears of a Eurozone break-up. But the record flows failed to stem the rupee's slide, which fell 9.7% since March 31 to 55.81 against the dollar on Tuesday. "NRI money can take care of just a portion of the current account deficit," says KN Dey, director at Basix Forex. "The country needs a long-term solution like FDI. Policy paralysis has choked the FDI flow, which is a must in the present Indian economic context."  The country's current account deficit may improve in 2012-13, albeit marginally, to $65.3 billion, or 3.5% of the GDP, against the initial projection of $74.3 billion, or 4% of the GDP, Citigroup India economist Rohini Malkani forecast recently.  For Indians residing abroad, NRE (non-resident external rupee accounts) has become the most attractive deposit scheme after the RBI deregulated interest rates attached to it late last year. NRE rates are now on a par with domestic deposit rates. Overseas Indians can earn as much as 9.25% on their deposits here, compared with just about 2% or even less in most developed countries.  Senior bankers said depositors were withdrawing money from foreign currency non-resident (banks), or FCNR-B, accounts to park it in NRE accounts. FCNR-B accounts witnessed an outflow of $662 million in April, while NRE accounts saw inflows of $3.751 billion, 13.5 times the banks received in April last year. Under FCNR-B, the currency risk is borne by the bank, while investors bear the risk under the NRE scheme.  The non-resident ordinary rupee (NRO) account, which is non-repatriable and only for NRIs' local use, has seen an inflow of $124 million. NRIs brough in $4.658 billion during January-March this year. Senior bankers said robust NRI inflows continued in May and are expected be good in June. However, they said it could slow down in July and August."Julyand August are vacation time in the Gulf and Indians working there will return and start spending here," said A Surendran, head of international banking at Federal Bank.  Western Union India MD Kiran Shetty said Indians are remitting more money now to take advantage of the rupee's depreciation.  atmadip.ray@timesgroup.com