Banks are leaving no stone unturned to grab a larger share of deposits flowing in from non-resident Indians (NRIs), with conducive conditions such as a weaker currency, higher interest rates and relaxed regulations.
“It was a forgotten business segment. Now it is coming back in focus,” said Pratip Chaudhuri, chairman of State Bank of India (SBI).
The country’s largest lender is gearing up to add 25 branches this year, specialised in catering to the needs of NRIs. This will add to 53 such branches across the country. The lender has also increased focus on cross-selling loans and investment products as “the business on the assets side is small,” said Chaudhuri.
Two most prominent deposits where NRIs park money are non-resident external (NRE) rupee accounts and foreign currency non-resident (banks) {FCNR-B} accounts. The amount is kept in rupees in NRE accounts. While the money is repatriable, the NRI bears the exchange risk while moving it abroad.
State Bank of Travancore, one of SBI’s associate banks saw NRI deposits rise from Rs 14,094 crore at the end of December 2011 to Rs 16,922 crore at the end of May 2012.
Banks have been enjoying a bounty from money coming in from Indians abroad since January, after the Reserve Bank of India (RBI) liberalised the interest rate regime for rupee and foreign currency (FCNR-B) deposits. A Senior public sector bank executive said RBI has informally told banks to start a drive to raise FCNR-B deposits. Bank officials are aware that such “double benefit” times do not last long and they might not see the trend “repeat” in the near future.
“The call is to get more deposits. Hence, other than banking on existing clients, we are also expanding new relationships through our international networks,” said Sandeep Das, head of private bank, Standard Chartered Bank, India.
In April, the flows in NRI deposit schemes were at a record high of $3.2 billion, though it was skewed in favour of non-resident external rupee deposits, where interest rates were deregulated in December. Banks saw money move from FCNR-B to NRE deposits as customers took advantage of the rate differential. In May, RBI raised the ceiling on FCNR-B dollar deposits, too.
“Now, the flow has stabilised and both foreign currency and rupee deposits are attracting flows,” said P Nanda Kumaran, managing director at SBT.
Aware that NRIs can’t be just seen as sources for liabilities, banks have expanded focus to hawk them loans and provide investment advisory services.
“We have enhanced our team covering the NRI market. There is a substantial amount of work from the NRI market and this is going to increase,” said Satya Bansal, CEO-India, Barclays (wealth and investment management). The environment abroad has also made investments in the home country emotionally attractive, he added. “NRI business as a part of our total business will be almost one-third in about two to three years.”
Shiv Gupta, managing director at RBS Private Banking in India said, the bank had witnessed an increase in interest from the NRI segment in rupee denominated fixed income instruments.
“The rupee at these levels is a good entry point for rupee buyers from a long-term perspective,” said Gupta.
The rupee has depreciated around 25 per cent in the past year and the outlook remains bleak.
“With the recent depreciation, conversion of dollar assets has become fairly attractive, although there are concerns to be factored on whether the currency will depreciate further,” said Barclays’ Bansal.
He added the interest rate differential between dollar deposits abroad and in India are seven to eight per cent, that should provide good buffer to NRIs for the currency risk they carry.
