NRIs Unresponsive to Stronger Rupee

Non resident Indians have not woken up to the advantages of the stronger rupee – NRI deposits have not shown any upsurge ever since the rupee appreciated by Rs. 3.50 against the dollar earlier this month.

Trading at Rs. 40.50 against the dollar since last week, the
rupee has surpassed all previous performances.
For NRIs, a strong rupee offers exchange rate benefits when dollars
are converted to rupee accounts.

NRIs are still shying away from
NRI deposit schemes since the interest rates were pulled down
in February.
Since February 2007, NRE deposits have performed better than
the previous year, adding up to USD 1,177 million till April
2007.

However, these deposits also began to lose out to outflows,
which amounted to USD 213 million in February alone.
NRI deposits such as the NRE and FCNR are the most frequently
used routes for savings by overseas Indians.

While NRE deposits
hold the Indian rupee, FCNR (B) deposits can be maintained in
any of the 6 designated foreign currencies. NRE accounts reconvert
the Indian rupee to the dollar when the amount is repatriated
abroad.

A non-resident Indian who would have made a deposit of USD 100
last year when the dollar was exchanged for Rs. 45.88 stands
to gain if he were to withdraw the amount now, as it would fetch
him USD 113.28, computed against the current rate of Rs. 40.50.

NRIs have overlooked this benefit, allowing low interest rates
to determine their quantum of deposits. Higher interest rates
in overseas markets could also be one of the reasons for deviation
of funds from the Indian market.

In 2002, when the rupee had gained against the dollar, NRIs
had used the exchange rate to advantage, but the RBI had stepped
in to restrict inflows by reducing the interest rates.

This time
around, the RBI has deployed the same measures, capping interest
rates on the 1 to 3 year period of NRE accounts.

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