Gulf-based NRIs account for a major chunk of expat Indian deposits in various Indian banks.
Non-resident Indian (NRI) deposits in Indian banks is expected to see a slowdown in the coming months, with concerns of further cut in the interest rates on these deposits in the wake of India’s central bank slashing repo rate in its latest policy review meeting.
The Reserve Bank of India on Friday announced 25 basis points in cut in its repo rate - the rate at which banks borrow from it – in line with its continued efforts to give a renewed push to India’s slowing economy.
This was the fifth time in a row RBI cut repo rate this year, bringing down the policy rate by 135 points in total in the last 8 months.
“Since banks have linked their floating lending rates for retail and micro and small enterprise segments to the repo rate starting from the beginning of this month, the cut in repo rate may also lead to a further reduction in deposit rates,” a senior official at a Kerala-based private bank told Arabian Business.
“This may also mean a cut in NRI deposits, especially on their rupee deposits,” the official added.
NRIs hold term deposits in Indian banks - either rupee-denominated or USD-denominated - under non-resident external accounts.
The interest rate on NRI rupee deposits have seen a 0.8 to 1 percent reduction in the last one year to 6.5 - 6.6 percent, while the interest rate on US dollar-denominated deposits by expat Indians in Indian banks have seen a cut of about 0.60 percent in the last 6 months to 2.55 percent currently.
State Bank of India, India’s largest commercial bank, which also accounts for the bulk of NRI deposits, is slated to review the interest rate on NRI deposits later this week, according an official in the bank, who did not wish to be quoted because of the sensitivity of the issue.
Gulf-based NRIs account for a major chunk of expat Indian deposits in various Indian banks. NRIs residing in the US, UK and Europe also hold large-scale deposits in India due to the relatively high interest rates offered by banks in India.
Financial market experts said despite the falling interest rates on their deposits, NRIs do not seem to have many options currently to channelize their savings.
“Except gold, other asset classes such as real estate and stock market are either down or look risky currently for investments. This leaves NRIs with not much of an option but to keep their savings in deposits in Indian banks,” M R Rajaram, a leading financial sector consultant, told Arabian Business.
“Besides, despite the cut in interest rates on dollar deposits in NRE accounts, the rates offered by Indian banks are still much higher than what they can earn in the international market, say on bank deposits in the US, Europe or UK,” he added.