The imposition of a 10 per cent cash reserve ratio on non-resident deposits in April 1997 started having an impact in July 1997, which resulted in subdued net inflows under foreign currency non-resident (FCNR-B) deposits, non-resident external rupee accounts (NRERA) and non-resident non-repatriable rupee deposits [NR(NR)RD], states the RBI annual report.

The drop in NRI deposits inflow in 1997-98 will be compensated by the resounding success of the Resurgent India Bonds, which mopped up $4.18 billion, analysts said. However, about 15-20 per cent of the RIB mopup was a result of the conversion of FCNR(B) deposits. The net gain was substantial as short-term deposits were converted into five-year funds.

"Under the FCNR-B scheme, where deposits are accepted and repatriated in foreign currencies, large net outflows were recorded in the period October 1997 to February 1998. Ofthe outstanding balances under the scheme, about 60 per cent was not swapped domestically nor lent to residents in foreign currency in response to sluggish local demand and unsettled foreign exchange market conditions," the report states. Another factor leading to the outflows was the removal of the interest rate incentive with a linkage to the Libor.

NRERA and NR(NR)RD deposits were relatively unaffected, except for limited net outflows in August 1997 and November 1997. "The freeing of interest rates under NRERA, the facility for forward cover, the removal of the incremental CRR on both NRERA and NR(NR)RD and multiple prescriptions for loans out of resources mobilised under non-resident deposit schemes had the combined impact of effectively addressing the speculative sentiment and signalling confidence in rupee-denominated assets," the report states.

IN 1996-97, NRI deposits had recorded a three-fold jump to $3.44 billion, up from $944 billion in the previous year. Net inflows under FCNR(B) depositsduring 1996-97 were at $1.78 billion while the net outflows recorded under the discontinued FCNR(A) scheme amounted to $1.95 billion.