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It’s time to invest’ in Indian deposits - ‘Indian banks are safer’

OCT 11, 2008
Venugopalan ... ‘Indian banks are safer’
By Santhosh V Perumal
INDIAN expatriates should cash in on the current favourable exchange rate and high interest offered by banks in India by investing in their country, according to a top banker.

Moreover, Indian banks were safer as their exposure to the US was “insignificant” and the country did not have a large presence of structured products which compounded the US banking crisis, said Federal Bank managing director and CEO M Venugopalan.

“I will ask NRIs (non-resident Indians) to take advantage of the current situation of high exchange rates and interest rates,” he said.

Federal Bank has an NRI customer base of 400,000 with deposits in excess of Rs56bn, or 20% of its total.
It was advisable to invest in non-resident ordinary (NRO) deposits or relatives’ domestic deposits as rates were higher now, he said.

Federal Bank, which has 608 branches and 537 ATMs in India, has tie-ups for remittances with Doha Bank and City Exchange, National Exchange, Gulf Exchange, Habib Qatar and Al Dar Exchange.

At present, NRO deposits of less than one year fetched an annual interest of 10.6% and those of less than three years got 10.5%, whereas non-resident external (NRE) savings deposits earned only a little over 4%, Venugopalan said.
However, unlike NRE savings accounts, NRO accounts attract a tax of 10% in the case of Qatar. Tax is higher at about 33% for NRIs of countries that do not have double taxation avoidance treaties with India.

“Even after tax is factored in, the return on NRO deposits is attractive (the net interest rate will be 9.5-9.6%),” he said.
With global equity markets in the doldrums and interest rates set to decline, it would be better to invest now in NRO and other domestic deposits offering high returns, he said.

Federal Bank’s total business crossed Rs480bn with deposits of about Rs270bn and advances of Rs210bn as of June 30.
Venugopalan hinted the bank may manage one of the exchange houses in Qatar, while maintaining the existing ties with other firms.

It plans to open 70 more branches this year, mostly in Tamil Nadu, Karnataka, Maharashtra, Gujarat and Delhi. It also plans to add 100 ATMs.