Hot on the heels of oil prices, the sendhomes from oil economy too have now letdown the country?s economy. Kerala banks are feeling the first crumble of the NRI cookie, if the latest pattern in bank deposits is any index.

The long tenure of strong rupee (vis-a-vis dollar and Gulf currencies) has punched down as much as Rs 1,339 crore NRE bank deposits in Kerala within just six months, reveals the fine print of the data, released by State Level Bankers Committee last week. The turning point was in second quarter (Q2) of 2007-2008. Till then, it was only the rate of growth of NRE deposits that was falling.

Since, at nearly Rs 32,000 crore, Kerala sits on as much as one-fifth of India?s NRI bank deposits, this shakedown has now country?s banking honchos

scurrying to make policy corrections. The State Bank group, for instance, has promptly announced jacking up of its NRI deposit rates.

??At present, hedging among currencies is a better bet in Gulf than parking funds in NRI deposits in Indian banks,?? says Lonappan Scaria, who worked in Bahrain for 35 years. Qatar, Saudi Arabia and UAE are expected to unpeg their currencies from dollar soon. His two brothers, employed in Gulf, are eyeing yields from dirhams and dinars, when this happens.

A World Bank study (2006) names Kerala among the top 20 remittance-receiving regions. But a recent paper by CSES (Centre for Socio-economic and Environmental Studies) estimates that rupee appreciation bled Kerala?s remittance kitty by Rs 8,660 crore in four-and-a-half years. KK George and S Remya, who worked on the CSES study (2008), cautions that the situation in Gulf could even rub the luster off the economic migration.

While those in high-end jobs scout currency arbitration windows, the blue-collar worker is in dire straits. Recent strikes in Bahrain revealed that strong rupee had brought down the 57 dinar monthly salary to mere Rs 5,700.

The pressure on Gulf worker to squeeze the most out of his earnings is more than before, with high rentals forcing many to even send their families home. In Dubai and Sharjah alone, rent costs had soared by 80-90% in the last two years.

The more optimistic among the bankers are keen to argue that the shrink in NRI deposits does not necessarily mean a fall in NRI remittances. In June 2007, NRE deposits (Rs 31,995 crore) comprised 34% of total bank deposits. In December 2007, this (Rs 30,656 crore) fell to 30.8% of total deposits. ??The NRI money pouring into the buoyed property market in Kerala is fetching new depositors, in the garb of the real estate seller. Banks gained, reflecting in domestic deposits growing by Rs 7,000 crore in six months,??says a senior official of Canara Bank.

Whatever the number-crunching says, most Kerala-based banks are not taking the slidedown in NRI deposits lying down. Kochi-based Federal Bank is resolved to open full-fledged office in Gulf and the United States and the RBI nod is expected to come in 2009. The bank has recently opened representative offices in London and Abu Dhabi to lure NRI income to its Kerala branches. Early results are not bad, says R Sivakumar, DGM, Federal Bank.

State Bank of Travancore (SBT), which enjoys the richest NRI warchest, too is firm about opening its Dubai office very soon. What if the currency-hedging trend among Gulf NRIs renders the bank?s Dubai foray unviable? ??After all, its a long-term strategy, where the returns will even out?? says M Ramaswamy, managing director, SBT.

As the expat deposits from the oil economy shrink, Kerala banks are growing serious on bigger footprint in Gulf. Bankers too, apparently, believe in mountain going to the Mohammed, if Mohammed does not walk the mountain?s way.