NRI Deposits: Indiam NRI Accounts and Interest Rates
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Non-resident Indian (NRI) deposits play a significant role in bolstering overall banking capital inflows and the capital account surplus. Two types of deposit accounts are available to NRIs to place their money in India with full repatriation facility: [br]
(i) Non-Resident (External) Rupee Account {NR(E)RA} and
Non-resident Indian (NRI) deposits play a significant role in bolstering overall banking capital inflows and the capital account surplus. Two types of deposit accounts are available to NRIs to place their money in India with full repatriation facility: [br]
(i) Non-Resident (External) Rupee Account {NR(E)RA} and
(ii) Foreign Currency Non-Resident (Bank) {FCNR(B)} account.
Banks in India can offer NR(E)RA in domestic currency and FCNR(B) deposits in foreign currency ( US dollar, Pound Sterling, Euro and Japanese Yen). While term deposits with maturity of one to three years as well as savings deposits are allowed under NR(E)RA, only term deposits of one to three year maturity are offered under FCNR(B).
NR(E)RA: With operational freedom to determine interest rates on various deposit schemes provided to banks in the early 1990s, banks were allowed to determine their own term structure of interest rates on NR(E)RA subject to the interest rate being ‘no more than 13 per cent’ effective October 1992 and ‘no more than 12 per cent’ with effect from April 18, 1993. In the event, the interest rate differential vis-à-vis domestic deposits remained broadly unchanged at one percentage point. With comfortable capital inflows, the interest rate ceiling was reduced to 10 per cent effective May 1994, and further to 8 per cent with effect from October 1994, bringing it two percentage points below the domestic rate. [br]
Following the drying up of capital flows, the ceiling was increased to 12 per cent in October 1995. To remove the disparity that existed in the interest rates on NR(E)RA and on domestic term deposits, interest rates on NR(E)RA term deposits were freed from the ceiling for maturity of two years and above with effect from April 4, 1996, and for maturity of one year and above with effect from April 16, 1997. Banks were accorded full freedom of interest rate determination across all maturities effective from September 13, 1997.
From April 2003, NR(E)RA term deposits were allowed only with maturities of one year or more. Effective July 17, 2003, interest rates on fresh NR(E)RA term deposits were subjected to a ceiling of 250 basis points above the corresponding US dollar IBOR/Swap rates. This ceiling was reduced to 100 basis points above the LIBOR/Swap rates on September 15, 2003, and further to 25 basis points above the LIBOR/Swap rates on October 18, 2003. Effective April 17, 2004, the ceiling was put at par with LIBOR/SWAP rates for US dollar of corresponding maturities. It was raised to 50 basis points above corresponding US dollar LIBOR/SWAP rates effective November 1, 2004.
The interest rate on savings deposits held in NR(E)RA, which was 6 percent in October 1992, was reduced to 5 percent effective October 1993.
In 2010, Advertised interest rates on NRI accounts range between 6% and 8%.
