NRE deposits at Rs 40K cr in FY’12

Non-resident Indians (NRIs) looked to make the most of the falling rupee and a deregulated interest rate on NRE deposits in the financial year ended March 2012.

According to the data released by the Reserve Bank of India, (RBI) the inflow of NRI money into Non-Resident (External) or NRE accounts jumped sharply in the financial year 2011-12 to hit a ten year high of $7.46 billion (around Rs 40,000 crore).

Inflows had reached a similar high in 2002-03 when it had touched $6.19 billion.

The year 2010-11 witnessed a net outflow of $280 million from these accounts.

During the year while the rupee crossed the 53-mark against the dollar, the RBI deregulated interest rates on NRE deposits in December 2011.

Interestingly almost 62 per cent of this inflow ($4.64 billion) were transferred in these accounts over the last four months of the financial year 2011-12 (December 2011 to March 2012), when the interest rates on such deposits jumped from an average of around 3.5 per cent till mid December 2011 (before deregulation) to around 9 per cent (after deregulation).

The highest monthly inflow recorded was in March 2012, which saw $1.67 billion (over Rs 8,000 crore). NRE accounts are one where NRIs can park their overseas savings that are remitted to India by converting into rupees.

"High interest rates have made the difference and it is also partly driven by the fact that the rupee may not depreciate much from here. However if it falls much from these levels then the inflows won't be similar to that witnessed in the last year," said Abheek Barua, chief economist, HDFC Bank.

Experts also feel the the RBI's measure to deregulate the foreign currency (non-resident) or FCNR deposits will now lead to an increased inflow in those accounts. "Since the currency risk in not there in such accounts, higher interest rates on such deposits will attract inflows," said Barua. Experts say that in the year 2011-12 money flowed from FCNR deposits to NRE deposits on account of the high interest differential.

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