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Kerala Banks are Raking in the Dollars
30-lakh-strong expats deposit . 3,500 cr in just 2 months as local currency falls 11% in same period

The weak rupee has come as a blessing for banks in Kerala at a time most lenders are finding it difficult to mobilise deposits. The 30-lakh-strong expatriate community from the southern state has been sending in more dollars than ever before to take advantage of the weak currency. They are estimated to have deposited . 3,000 crore to . 3,500 crore in banks in just about two months since March, as the rupee fell almost 11% against the dollar.

net-inflow State Bank of Travancore and Federal Bank, which together account for over two-thirds of non-resident Indian, or NRI, deposits in Kerala, have seen about 40% to 50% annualised growth in deposits from overseas Indians over March’s outstanding numbers.

“We are having a dream run in NRI deposits,” Federal Bank’s head for international banking group, A Surendran, told ET. The rupee’s 11% slide against the dollar in the last two months has made it the worst-performing currency in Asia. This means for every dollar exchanged, NRIs get 11% more in rupee. This, coupled with higher interest rates, makes the NRE (non-resident external rupee deposits) scheme one of the most attractive investment avenues for Indians working aboard. “I have sent home a good amount of my savings to take advantage of the weak rupee,” said Sandesh Menon, a senior finance professional working in Kuwait, which attracts a huge number of expats from Kerala. The southern state’s economy mostly depends on remittances.

State Bank of India chairman Pratip Chaudhuri had recently said that mobilising retail deposits locally will be the biggest challenge this year. SBI controls 23% of the NRI deposit market and has seen a sizeable growth in inflows.

Both State Bank of Travancore (SBT) and Federal Bank saw NRI deposits soar by about . 1,000 crore each since April while South Indian Bank’s deposits grew by about . 400 crore.

“Kerala is a consumer state and people keep a sizeable chunk of their deposits in savings accounts. We are expecting the higher flow to improve the share of CASA (current and savings accounts) to 32-33% by June from 27% in March,” Federal Bank’s Surendran said. A higher CASA helps banks improve profitability.

Officials at SBT and Lakshmi Vilas Bank, however, said that after the deregulation in NRE deposit rates in December last year, banks have made NRE fixed deposit rates on a par with local deposits. Expats now prefer term deposits over savings bank accounts and earn 8.75% to 9.25% for maturities of over a year, they said. Experts feel the heavy NRI flow will continue for some more months. Dun & Bradstreet India’s senior economist Arun Singh predicts the rupee to depreciate to 57 a dollar while the currency may stabilise after July in the 54-56 range as the eurozone crisis could persist for up to a year more.

NRIs put $11 billion in bank deposits during 2011-12, three times more than the previous year’s $3.23 billion.