The Central Bank has deregulated interest rates on Non-Resident External (NRE) deposits and Non-Resident Ordinary Rupee (NRO) accounts. This is a big move. It refers to the interest rate given on all the foreign deposits that get converted into rupees. At the moment, the ceiling is LIBOR plus 100 basis points. Now, there is absolutely no limit. You can pay only amount of interest, if you want to attract dollars. Basically, that is the statement that the Reserve Bank is making.
The NRE account is actually repatriable. Therefore, it gets some bit of a tax advantage as well because that money goes out, whereas the NRO account is the one that stays on. It is repatriable, it has USD 1 million repatriability. It has some limit of repatriability. It is money that stays back. It is normally taxable like all our savings rates.
Now, if the limit is removed, chances are that banks will treat it like any other savings account. It?s actually a savings deposit. So, chances are they may now raise it to 4% which is very good.
Where are dollar holders anywhere in the world getting 4%? The FED rate itself is 0.25%. You get next to nothing, if you have dollars in your hand. Here you are able to get, if you convert into rupees, atleast 4%. Chances are that you are going to see dollar flows.
The NRE account is actually repatriable. Therefore, it gets some bit of a tax advantage as well because that money goes out, whereas the NRO account is the one that stays on. It is repatriable, it has USD 1 million repatriability. It has some limit of repatriability. It is money that stays back. It is normally taxable like all our savings rates.
Now, if the limit is removed, chances are that banks will treat it like any other savings account. It?s actually a savings deposit. So, chances are they may now raise it to 4% which is very good.
Where are dollar holders anywhere in the world getting 4%? The FED rate itself is 0.25%. You get next to nothing, if you have dollars in your hand. Here you are able to get, if you convert into rupees, atleast 4%. Chances are that you are going to see dollar flows.
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