India Dispatch: The rupee's slump to record lows and high interest rates in India are triggering a surge in deposits in savings and fixed deposit accounts in Indian banks.
Indian expats borrow to invest back home
The rupee's slump to record lows and high interest rates in India are triggering a surge in deposits in savings and fixed deposit accounts as expatriates borrow money to take advantage of the attractive rate differentials.
"NRIs [non-resident Indians] do borrow money from abroad to put in fixed deposit and savings accounts to leverage interest rates," said ASurendran, the head of retail and international banking at Federal Bank, a major Indian bank headquartered in Kerala, with more than 1,000 branches across the country.
"Federal Bank has seen a surge in flows in fixed deposits and savings accounts from NRIs because of weakness of the rupee.
"There have been strong flows from the UAE/Gulf region in particular. The number of remittances and amount of remittances routed during the month of June have recorded an all-time high," he said.
Expats could get interest rates of 9 per cent on accounts in India, he said. Rates were sharply lower in countries including the UAE, which made the cost of borrowing cheaper and meant that gains could be made by placing borrowed funds in high interest accounts in India.
The rupee hit a fresh record low against the US dollar this month after tumbling to record lows last month, too.
The slide was triggered by expectations that the United States would scale back on its quantitative-easing monetary programme to stimulate its economy.
The Indian currency's weakness has been compounded by the country's own current account deficit woes.
Federal Bank reported growth of 22 per cent in deposits in its non-resident external savings (NRE) accounts in the quarter between April and June comparedwith the same months last year, said Mr Surendran. There had been a 13 per cent growth in its NRE-term deposits over the same period.
"There is Rs777 crore [7.77 billion rupees] growth in terms of amount in Indian rupee remittances from GCC countries during [April to June] on a year-on-year basis," he said.
UAE Exchange, a remittances and foreign exchange company, said flows from the GCC into high interest accounts in India were surging.
"All in all, we are experiencing a richer flow of money into India," said Y Sudhir Kumar Shetty, the chief operating officer for global operations at UAE Exchange.
"While the nation's economy is experiencing a bad phase, its citizens living outside the country are making hay while the sun shines, especially those from the Gulf region. There is a spike in the volume of money transferred as they are exploring every possible avenue to get the maximum amount of money to send back home.
Banks in the Arabian Gulf were cashing in on this trend, he added.
"Banks in the region are luring Indians with loan offers, taking advantage of the situation," Mr Shetty said.
"We are seeing customers closing their loans back in India, and adding to it is the enticing interest rates offered by banks in India, which further lure the expatriates to send in more money into their bank accounts as fixed deposits."