Non Resident Indians (NRIs) are avoiding NRI deposit schemes and are sending higher amounts instead to relatives back home. The July-September 2007 quarter witnessed a phenomenal hike in the remittances, the figures touched a new high of $10 billion. The NRIs invested only about $346 million in various bank deposit schemes.

For the fiscal year so far (April-September '07), while there has been a net outflow of $76 million from NRI deposits, remittances, as reflected in 'private transfers', amounted to $18 billion, an amount that the diaspora sent back home until 3-4 years ago.

Remittances have always been substantially higher than NRI deposits but the major cause of concern is the pace at which the two are growing. Punjab National Bank Chairman and MD KC Chakravarty said that rupee deposits fetch higher returns than in any NRI scheme. Besides, there is a provision to convert rupee funds back to dollars up to $100,000.

Indian Overseas Bank executive director G Narayanan said at a time when stock and real estate markets are booming, it is natural that interest in NRI deposits is flat. Moreover, returns are also regulated.

NRI deposits were marketed by banks initially to shore up the country's foreign exchange reserves. But in the past few years, with the reserves pile-up getting stronger and forex inflows adding to the liquidity management problems, the central bank is, in fact, trying to discourage such flows through caps on the returns that one can earn on such deposits, especially since the rupee started appreciating against the dollar from mid-2002 onwards.

Besides, in the present scenario, with Indian markets offering better returns on most assets, there is no incentive to convert rupee funds to dollars since returns are higher here, pointed out a banker. Data on NRI investment in other assets such as stock, real estate and other physical assets is not readily available in the public domain (unlike bank deposits).

According to recent study by RBI on the use of remittances by the relatives back home shows that about 46% of the proceeds are invested in stocks, properties, bank deposits and deployed in other avenues. Only 54% of the money is used for family maintenance.

One of the major factors contributing to the scenario is the fact that US economy, which has the highest NRI population and a major source of remittances, showing signs of a slowdown, and at the same time, brightening of prospects for the Indian economy, many NRIs are coming back which is also adding to the remittances figure.

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