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NRIs Unresponsive to Stronger Rupee
Monday, May 28, 2007

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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