The imposition of a 10 per cent Cash Reserve Ratio (CRR) on non-resident deposits in April 1997 started affecting inflows since July 1997. This resulted in subdued net inflows under foreign currency non-resident (FCNR-B) deposits, non-resident external rupee accounts (NRERA) and non-resident non-repatriable rupee deposits (NR[NR]RD), according to the annual report of the Reserve Bank of India (RBI).

However, the drop in NRI deposits inflow in 1997-98 will be compensated by the resounding success of the Resurgent India Bonds, which mopped up $4.18 billion, analysts said. However, about 15-20 per cent of the RIB mop-up was a result of the conversion of FCNR(B) deposits. The net gain was substantial as short-term deposits were convertedinto five-year funds of the RIB.

``Under the FCNR-B scheme, where deposits are accepted and repatriated in foreign currencies, large net outflows were recorded in the period October 1997 to February 1998. Of the outstanding balances under the scheme, about 60 per cent was not swapped domestically nor lent to residents in foreign currency in response to sluggish local demand and unsettled foreign exchange market conditions,'' the RBI report which was released on Friday said.

Senior bankers said another factor which led to the drop in inflows was the removal of the interest rate incentive with a linkage to the Libor (London Inter Bank Offered Rate).

NRERA and NR(NR)RD deposits were relatively unaffected, except for limited net outflows in August 1997 and November 1997. ``The freeing of interest rates under NRERA, the facility for forward cover, the removal of the incremental CRR on both NRERA and NR(NR)RD and multiple prescriptions for loans out of resources mobilised under non-resident deposit schemeshad the combined impact of effectively adressing the speculative sentiment and signalling confidence in rupee-denominated assets,'' the RBI said.

In 1996-97, NRI deposits had recorded a three-fold jump to $3.314 billion, up from $944 billion in the previous year. Net inflows under FCNR(B) deposits during 1996-97 were at $1.78 billion while the net outflows recorded under the discontinued FCNR(A) scheme amounted to $1.95 billion.

Senior bankers feel that inflows under various NRI deposit schemes are likely to fall further in the current year following the success of the RIB issue. Several billions of dollars which would have come as NRI deposits already reached India through RIBs.

Mauritius leads in FDI

MUMBAI: Mauritius has retained the top slot as the largest investor --foreign direct investment (FDI) -- in India for the year 1997-98. The small island country brought in $ 3.346 billion ($ 3.00 billion in the previous year) as FDI. It was followed by the US which invested $ 2.554 billion asagainst $ 857 million previously. South Korea made an FDI of $ 1.238 billion as against just $ 22 million in the previous year. Multinationals and foreign investors took advantage of the tax treaty with Mauritius and routed their investments through companies registered there.