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Flow of NRI deposits to Kerala turns to a trickle, rattles banks

D Jose in Thiruvananthapuram

Banking circles in Kerala are concerned over the continuing slackness in the flow of non-resident Indian remittances to the state, which is the mainstay of the state's economy.

Executives of major banks in the state are worried over the situation since the fall in the NRI remittances has had a direct bearing on the overall deposits of their banks. They are unable to explain the sluggishness in the flow of remittances, since there has not been any appreciable increase in the real estate and share business activities in Kerala in recent times.

In fact, the bankers were expecting the NRI deposits to pick up following the curbs imposed on non-banking financial institutions and the recent crackdown on illegal currency operators.

According to the latest banking statistics released by the State Level Bankers' Committee, all the major banks in the state have witnessed a steep fall in the rate of growth of foreign remittances.

The rate of growth of NRI deposits in banks in Kerala came down from 25.60 per cent in 1996-97 to 25.12 per cent in 1997-98. The growth further came down to 22.99 per cent in the first three months of the current financial year.

The rate is likely to be much lower in the next three months from June to September since a major portion of the NRI deposits was diverted to the Resurgent India Bonds.

Banking circles fear that the impact may prolong since several big NRI investors had availed liberal loans extended by foreign banks to subscribe to the RIBs. They would use the cash flow in the coming months to repay the loan rather than swelling their bank deposits, said a senior banker in Thiruvananthapuram.

In absolute terms, the NRI deposits grew by only Rs 5.12 billion during the first three months of the current financial year.

The overall growth of the NRI deposits during March 1997 to March 1998 has been Rs 25.56 billion as against Rs 20.74 billion during March 1996 to March 1997.

There was a 20 per cent growth in the NRI deposits between 1996 and 1997. NRI deposits had recorded a compound annual growth rate of 25 per cent during 1988-1997. In comparison, non-NRI deposits grew by only 16 per cent during the period.

The fall in the growth of NRI deposits has affected both private and public sector banks in Kerala. State Bank of Travancore, State Bank of India and Canara Bank, the three main players in NRI business in the state, are the most affected by the fall in the incremental growth. Exclusive NRI branches that have targets to achieve are finding the going tough.

The slackening of NRI remittances has left a deep impact on the overall bank deposits in the state. According to the latest banking statistics of Kerala released by the SLBC, the growth of deposits in the first three months of the current financial year has been to the tune of Rs 4.5 billion compared to Rs 22.42 billion during December 1997 to March 1998.

Bankers in the state are at a loss to explain the situation. There are no factors that warrant such a steep fall in the growth, they said.

Some bankers feel that the fall may be due to a reduction in the earnings of NRIs in the Gulf, which is the mainstay of NRI deposits in the state.

There are no reports of any appreciable increase in the flow of money through illegal channel or massive investments in real estate and construction sectors. In fact, the flow of gold from abroad to Kerala has also come down considerably during this year compared to last year.