Mumbai, February 25: Foerign exchange inflow via NRI deposits is set to show a dip this year due to rationalisation of the deposit rates by Indian banks and increasing crackdown on money laundering and tax evasion by the developed nations.According to senior bankers, NRI deposits under foreign currency non-resident (FCNR-B) account is likely to show a dip following the crackdown on money laundering operations in the United States and many western European nations this year. A major chunk of FCNR-B funds with Indian banks is accounted for by deposits made by rich NRIs to evade tax in their host countries, say bankers. During the course of this year, the United States and many European nations -- notably United Kingdom -- have launched a concerted attack on money laundering operations. One of their prime targets is the non-resident accounts held by their citizens with banks orginating from their country of origin.
Due to this, the repatriable accounts have lost its attractiveness for these large accountholders. According to bankers, some NRIs have also withdrawn their large FCNR(B) accounts due to the crackdown on money laundering.FCNR-B accounts is increasingly been discouraged by banks by offering deposit rates much below the prevailing overseas rates. This is because banks are finding it difficult to deploy their FCNR-B fund profitabily. This is despite the freedom given this year by the central bank to banks to give foreign currency loans out of their FCNR-B funds. With low rates the only attraction for FCNR-B account was its utility in tax evasion and money laundering and now even that is being threatened, said an official of a public sector bank.
FCNR-B fund account for $ 7.5 billion -- nearly 40 per cent of the total NRI deposits of $ 20.5 billion as of end March, 1996. The rest is mostly accounted for by the repatriable NRE account and non-repatriable NRNR account. In the case of NRNR accounts, only interests are repatriable.
These accounts are also witnessing a reduction in growth due to theun-attractive rates offered by Indian banks as part of rationalisation of interest rates on a par with the domestic rates.
NRI deposits under NRE scheme amount to $ 5 billion, while NRNR accounts for $ 5.6 billion. While, there is no threat of outflow on account of NRNR deposits, the possibility of reverse flow under NRE acccount is real with the depreciation of the Indian unit. The NRE deposit holders stand to lose when the rupee depreciates.
"The depositors are paid in rupee at the spot rate of the day of maturity of the deposit and hence the real interest rate works out to be slender if one takes into account the depreciation of the local currency," said one baker.Most of the major Indian banks have recently raised interest rates offerd on NRE and NRNR accounts to bring it on a par with the domestic rates.
Copyright(c)1998 Indian Express Newspapers (Bombay) Ltd.
