There has been a substantial rise in the inflow of foreign currency non-resident [banks] (FCNR-B) deposits after the Septemember 11 terrorists attacks on the US.
This, apart from the portfolio inflows, have been bolstering the foreign currency assets of the country.
Foreign currency assets, of which FCNR-B deposits and foreign institutional investments form important components, have seen a healthy addition of $4.47 billion during the financial year, so far.
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The 400 basis points differential in the US-Indian interest rates, and the renewed interest of the non-resident Indians (NRIs) in the real estate sector in the country, are believed to be spurring the growth in these deposits.
Also adding to the NRI confidence is the growth rate of the Indian economy, which, though is expected to be only 5 per cent this fiscal, is still robust compared with many developed countries in the light of the global scenario, analysts said.
Foreign institutional investments in both the equity and debt marts in the current financial year, so far, stand at $2.869 billion out of the total foreign currency assets' accretion of $4.47 billion.
Bankers said the last couple of months has seen a substantial jump in FCNR-B deposits, notwithstanding the interest rate cuts. As repayments under these deposits are made in terms of foreign currency, they offer protection against the exchange rate fluctuations.
The bankers added that NRIs were also taking housing loans against these deposits. They said banks were welcoming this because of low credit offtake and also the chance to increase their portfolio of low-risk credit.
However, officials with Bank of Baroda, which has an FCNR-B portfolio of close to $1 billion, said there have been only renewals and no spectacular rise in fresh deposits.
They added that though the differential between the interest rates in the US and India has widened, the rates payable on the FCNR-B deposits have been cut by the banks.
However, the refrain among a majority of bankers is that the FCNR-B inflow has increased and will continue to rise despite the Reserve Bank of India directive asking banks to strictly follow the know-your-customer rule for NRI deposits.