It is an important step by RBI where by its announcement it has has deregulated the interest rate on NRI deposits of one year or more. RBI need to get its act together as NRIs have to deal with mind boggling vocabulary which ranges from “NRE”, “NRO” and “FCNR” etc.
It is important to note that NRE and NRO accounts are exposed to interest rate risk because in case the rupee depreciates, NRIs have to buy back dollars during repatriation at a much higher rate. (NRE deposits pay no Indian taxes on the interest)
Why NRI deposits is Important for India?
Please note that more than $52 billion is lying in non resident deposits (around Rs. 275,000 crore) which is about 5% of the banking system’s deposit base of 52 lakh crore. An increase in such inflow will help the rupee as we will have more dollar inflow as compared to outflow.
Why Karnataka Bank Deposits is Best for NRI?
The below screen shot amplifies the fact that Karnataka bank is offering excellent returns on the NRE deposits and it stands at 9.75% which is more than enough to beat inflation. Also note that the NRE Account interest is not taxed in India and to add to its glory, Middle east countries taxes are zero or bare minimum and thus return is just great(applicable for other deposits like NRO or for resident accounts). Earlier rate of interest on such accounts and for the given periods was maximum 4%, however deregulation by RBI has given a boost to these interest rates. The new rates in Karnataka bank are effective wef 11 Dec 2011.
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