Indian rupee fall: NRIs raise cheaper loans abroad, remit money to India

Written by George Mathew | Mumbai/ Kochi | Updated: Sep 18 2013, 15:02pm hrs
Indian rupeeThe 25% fall in the value of rupee is tempting NRIs to take loans at cheaper rates in various Gulf countries and remit the money to India.
The non-resident Indian (NRI) community in the Gulf region seems to have struck a goldmine after the steep fall in the Indian rupee since May this year. The 25 per cent fall in the value of the currency is even tempting NRIs to take loans at cheaper rates in various Gulf countries and remit the money to India to take advantage of the depreciation in the rupee value.

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Take the case of Biju M, based in Kuwait, who recently sent around Rs 3 lakh of borrowed money to his non-resident external (NRE) account in India. After the fall in the rupee value since May, I get more rupees on conversion. Moreover, interest rates are higher in India when compared to Kuwait. Besides, I need money for construction of a new house. The rupee has even fallen against the Kuwaiti dinar from below 200 to over 240, Biju said.

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According to State Level Bankers Committee (SLBC) data, remittances to Kerala, which receives the maximum NRI money in India, have crossed the Rs 75,000 crore in the first five months of the fiscal as against Rs 60,000 crore at the end of last fiscal. Its double advantage for NRIs. They get interest rate of 9-10 per cent in India. Secondly, on conversion they get more rupees in their account in India. They could be taking loans to bring to India and make more money out of it. If this continues, our bank will see a 45-50 per cent jump in NRI remittances this year, said A Surendran, Head - Retail and International banking, Federal Bank.

Interest rates are comparatively low in the Gulf region. The benchmark rates in Kuwait and Saudi Arabia are 2 per cent, Qatar 4.50 per cent and UAE 1.36 per cent. Its a good arbitrage for NRIs. The NRE account offers two-way fungibility, which means there are no restrictions for transferring the money from the NRE account to the foreign account. Most NRIs are using this route to remit money. Besides, under the FEMA (Foreign Exchange Management Act), therere no curbs on remittances to India under the NRE or NRO accounts, which are maintained in Indian currency and can accept remittances in foreign currency. Remittances from other countries have also increased. We have come across instances of Gulf NRIs taking loans to remit it to India, said a senior official with a bank which is witnessing a surge in NRI flow.

Surendran said the sudden jump in flow could slow down if and when the rupee stabilises. Remittances in the first five months have already crossed the amount remitted in the whole of last year. Some HNIs (high networth individuals) have started looking at FCNR route after the RBI recently liberalised the norms, he said. Earlier this month, RBI Governor Raghuram Rajan liberalised the norms offering a window to the banks to swap the fresh FCNR (B) dollar funds, mobilised for a minimum tenor of 3 years and over, at a rate of 3.5 per cent per annum for the tenor of the deposit.