MUMBAI (TIP): Lured by higher returns offered by banks in their homeland, non-resident Indians (NRIs) placed deposits aggregating $14.18 billion in the financial year ended March 2013, an increase of 19 per cent over the previous year. In the previous year, NRIs parked deposits aggregating $11.92 billion with banks in India. NRIs placed deposits predominantly in non-resident (external) rupee account or NRE account. NRE deposits with the banking system jumped 85 per cent (rising by $15.81 billion in FY13 compared to $8.53 billion in FY12), according to Reserve Bank of India data. The attractiveness of NRE deposits lies in the fact that banks quote the same interest rate on these as on domestic deposits.

For example, State Bank of India is quoting 8.75 per cent on NRE deposits of one- to 10-year duration. Also, the principal and interest are fully repatriable and the interest earned is exempt from Indian income-tax. “The rising trend in NRE deposits is an indication that the NRIs expect the rupee to appreciate down the line. So, the NRIs are not only gaining by way of interest rate but also on account of favourable exchange rate conversion factor,” said a banker. In FY13, the banking system’s NRO (non-resident ordinary deposits) shrunk by $1.8 billion (against an accretion of $4 billion). Since NRO deposits are nonrepatriable and require submission of tax-residency certificate and self-declaration, bankers say these deposits have become unattractive.