NRE deposits to earn higher interest rates

Already a weakening rupee has led to increase in remittances from Gulf-based non-resident Indians (NRIs), now they can earn a higher interest rate on their non-resident external (NRE) deposits as well.

The Reserve Bank of India (RBI) has deregulated interest rates on non-resident external (NRE) rupee deposits and ordinary non-resident (NRO) accounts on Friday, to provide banks better flexibility to mobilize such deposits in view of the prevailing market conditions. Banks have been given the liberty to decide interest rates on both savings deposits and term deposits, having a maturity of one year and above, under non-resident external rupee deposit accounts and savings deposits under ordinary non-resident accounts with immediate effect, it said. Over the past few years, banks in India were offering nothing more than 3.8 per cent for a NRE deposits with maturity of one to five years. But following the RBI announcement, Kochi-based Federal Bank said it would offer interest of 6.5 per cent on NRE term deposits with a one-year maturity period, compared with 3.82 per cent earlier. Thrissur-based South Indian Bank increased NRE term deposit rates for maturities ranging between one and ten years to 6.75 per cent compared to 3.51-3.82 per cent on deposits across different maturity periods. Business Standard newspaper quoted officials from State Bank of India saying there could be a rise of 200-300 basis points in the bank's non-resident deposit rates, but added the bank was yet to decide when the rate rise would be effective.

Jitendra Gianchandani, Chairman, Jitendra Consulting Group, told Emirates 24/7: “As banks in India are facing liquidity problem, they can target NRIs to attract more funds by offering better interest return. Besides, NRI's have double advantages, apart from better interest rates; rupee is low against the dollar, which is leading to increase in remittances.” He added: “The Kerala-based banks have been on the forefront in announcing the new rates for NRE deposits… others will have to follow. I am certain that the announcements from major private and public banks will made soon.” Shirish Mandke, an accountant with a Dubai-based bank, says: “I have been waiting for this move from RBI for sometime now.

I am certainly going to take advantage of it. Though I haven’t heard from my bank yet about the new interest rates, I am pretty sure they will e offering higher interest rates on NRE deposits.” B. Lekha, a software engineer, says she too is waiting to hear from her bank. “I too haven’t heard from my bank yet. I have recently remitted a lot of money and I would like to take advantage of the higher interest rates being offered particularly on NRE deposit.”

Funds in NRE accounts on the other hand, are non-taxable and can be taken back by the accountholder, while funds deposited in non-resident ordinary accounts are taxable and cannot be repatriated. In November, Y Sudhir Kumar Shetty, COO – Global Operations, UAE Exchange, told this website that they were witnessing up to 20 per cent spike in remittances from the UAE. The rupee declined 0.2 per cent to 52.9725 per dollar on Tuesday morning, according to data compiled by Bloomberg.

It reached a record low of 54.3050 on December 15 and then rallied 1.7 per cent next day as the central bank announced measures to curb speculation. According to RBI data, outstanding deposits in NRE accounts stood at $25 billion and NRO accounts stood at $11 billion at the end of October. Parag Deulgaonkar 20 Dec 2011 http://www.emirates247.com/business/nre-deposits-to-earn-higher-interes…