NRI deposits in Kerala banks on a high

NRI deposits in Kerala banks touched a new high of Rs 329 billion on Dec 31, 2006.
NRI deposits in 3,539 branches of various banks grew from Rs 288 billion in December 2005 to Rs 329 billion, constituting 38।42 per cent of all deposits in the state's banks, said figures released at a bankers' committee meet in Thiruvananthapuram on Tuesday.

Details of the NRI deposits show that the State Bank group leads the pack with a total of Rs 124 billion, followed by private sector banks with Rs 101 billion। Then come nationalised banks with Rs 97 billion.

The State Bank of Travancore, Kerala's own bank, leads all other banks with a record Rs 81 billion। Among private sector banks, the Federal Bank leads with Rs 48 billion.

Kerala has a record two million Keralites working abroad, of which close to 85 per cent are in the Middle East.

Central Bank has Reduced the Ceiling on NRI Deposits

Non-resident Indians (NRI) will now have to settle for lower returns from their deposits in India। The central bank has reduced the ceiling on NRI deposits - FCNR (B) and NRE - by 50 basis points, making these deposits less attractive for investors. The downward revision in the cap on interest rates comes in the wake of large capital flows into the country.

At present, the interest rate ceiling on FCNR (B) deposits is fixed at London Inter Bank Offered Rate (Libor) minus 25 basis points for all maturities। Now, this will be Libor minus 75 basis points.

For NRE deposits, where the depositor takes the exchange rate risk due to the conversion of the funds into rupees, the interest rate ceiling has been brought down to Libor। Earlier, the ceiling was not to exceed 50 basis points above Libor.

"These measures should result in smaller net inflows and help stabilise the rupee in the medium term,'' said Romesh Sobti, country executive, India ABN Amro Bank।

RBI's decision is expected to reduce the scope for interest rate arbitrage and check the rise in money supply। The central bank had lowered the ceiling as late as in January 31, 2007, on FCNR (B) by 25 bps and NRE by 50 bps.

The inflow of NRI deposits showed a quantum jump between April and December 2006 over same period in 2005. They (flow) registered an increase of $3.2 billion in April-December 2006 over that of $1.1 billion in April-December 2005. The outstanding NRI deposits rose from $ 35.13 billion as on March 31 2006 to $ 39.31 billion at the end of January 2007, according to RBI data.

Banks Seek Hike in FII, NRI Cap in Hybrid Capital

Banks have asked the Reserve Bank of India (RBI) to review the ceiling on investment by foreign institutional investors (FIIs) and non-resident Indians (NRIs) in perpetual debt and debt capital instruments (hybrid capital)।

According to RBI guidelines, investment in these instruments by FIIs and NRIs are to be within an overall limit of 49 per cent and 24 per cent of the issue। Investment by a single FII and NRI was capped at 10 per cent and 5 per cent of the issue.

This demand was made to the RBI Governor Y V Reddy by a delegation of bankers, including K V Kamath, managing director and chief executive officer,ICICI Bank, V P Shetty, chairman and managing director (CMD), IDBI Ltd, A K Khandelwal, CMD, Bank of Baroda, P J Nayak, CMD, UTI Bank, and Sanjay Nayar, chief executive officer, Citibank, India।

In January, 2006 the RBI had permitted banks to raise capital through additional instruments popularly known as hybrid instruments। This was to let banks shore up their capital in the light of the implementation of Basel II norms. However, the RBI capped FII and NRI investments in these debt instruments.

“The investors in hybrid debt instruments are pension funds, provident funds and large institutional investors looking for fixed returns। The relevance of the ceilings prescribed may be examined considering that the hybrid debt instruments does not constitute any equity participation with ownership/voting rights implications. The ceiling fixed by the RBI has more relevance for equity participation. Since hybrid capital is not purely equity capital, there is a need to examine this aspect,’’ said the CEO of a private sector bank.

“There is a talk of moving towards full capital account convertibility. Under full capital account convertibility such restrictions have to be done away with. If the ceiling set is to ensure that such inflows do not fuel liquidity then the regulator could ask banks to keep the funds overseas rather than place restrictions on investments,’’ said a senior banker.

THE NR EYE: Real estate investments beckon NRIs

The hike in interest rates by the Reserve Bank of India, the ongoing regulatory reforms by the government and enhanced liquidity place non-resident Indians in a very good position to park their excess funds in property back home।

These factors, coupled with the phenomenal growth pattern currently being experienced by the real estate market in India, have not gone unnoticed on the real estate companies which have high expectations of overseas Indians।

India’s FDI climbed to a record-breaking $11।2bn in 2006, a 155 per cent year-on-year increase. Reformed real estate investment regulations for Non-Resident Indians (NRIs) and more crucially foreign investors have provided the impetus to drive the value of the Indian real estate market towards $50bn by 2010.

In 2005, the Indian government announced that FDI in the real estate sector was permitted through the ‘automatic route’, in other words without requiring additional ministerial approvals, streamlining the investment process। Certain guidelines are in place regarding minimum land areas to be developed and minimum capitalisation requirements, but the net effect has been a massive inflow of foreign capital. It is estimated that capital worth $7bn will be pumped into development projects over the next year, much of that emanating from overseas.

The boom is not at all surprising, what with a population of 1।2 billion, growing annually by 1.4 per cent, a cost effective and educated work force and economic growth of eight per cent per annum. These conditions combined with competitive interest rates and a burgeoning IT industry, are driving the demand for not only residential but commercial space that is expected to reach 70 m square feet within three years, with retail developments taking up to an 11 per cent share.

The Indian government now has recognised the demands of NRIs and people of Indian origin to own pieces of property and over a period of time what we have seen is that the investment is both for them to come back and some form of speculation because India as a market now is giving good returns and the economy is booming so a lot of people are looking to come back.
The rules have been much simplified and it has become much easier to buy property for the NRIs। The new act FEMA (the Foreign Exchange Management Act) that is a vast difference from the regulation act (FERA) has made a tremendous difference in acquisition of property and sale of property and even repatriation of money if one has got property and he is selling it of. Overall things have improved for NRIs and it is a great time to be here.

The government of India has granted general permission for an NRI to buy property in India and he has to pay no taxes even while acquiring real estate India but however certain taxes have to be paid if he is selling this property। He would require a PAN card if he has rented out this property and he wants to repatriate that money but if it is going to be a sale of property depending on time or the duration of time he has held the property, the sale proceeds would be subject to capital gains tax and as of now if he has held the property for less than three years then he would be paying roughly about 30 per cent tax and if the property has been held for more than three years then 20 per cent as capital gains tax and that is what he will have to pay.

The list of incentives is quite comprehensive and, for example, allow an NRI to acquire property in India with exception to agricultural/plantation property or a farm house without formal permission। They are also entitled to transfer this property to any resident Indian without the prior permission of any government agency. An NRI can also inherit property of another NRI provided the property in question was bought in accordance with the provisions of the foreign exchange law in force at the time of acquisition.

However, a declaration form for acquisition of commercial property for carrying on any industrial, commercial or trading activity by their proprietary / partnership firm in India is required to be filed with RBI within 90 days from date of purchase।

Money can be repatriated abroad if bought with the foreign exchange earned abroad. That too, only in the sale of two residential properties but any number of commercial properties.
NRIs wanting to park their funds in India are taking the real estate market seriously enough to form informal groups to back select projects। Around 25 million NRIs are investing in immovable property in India, but unlike HNIs and financial institutions they are keen to invest in the housing segment, rather than commercial projects.

NRIs tend to invest in residential properties in India, preferably in their native towns or cities where their relatives and friends can supervise such projects। However, funds are now being put into some commercially viable projects as well, such as malls, hotels and office complexes. Around $600 million has poured in from such investments in the last one year, with a single investment from a group averaging between $10 to 15 million.

According to media reports, Law firms are receiving five to six enquiries every week from overseas Indians who club together and float a fund to build a property, stay on through the lock-in period, and sell it at a good profit।

Jaipur, Hyderabad, Vijaywada, Ahmedabad, Baroda and Surat have seen groups of NRIs making such investments in malls, office spaces and residential townships। These investments are generally routed through Mauritius to avail of tax benefits.

It is a win-win situation for both investors and real estate developers. The former earn handsome returns, while for the latter, it’s low-cost credit. Some projects in smaller cities have yielded as much as 50 per cent returns. The rise in interest rates is bound to bring real estate prices down in a few months’ time, and that would be the ideal time for NRIs to strike.

Builder held for duping NRI of Rs 14 cr

NEW DELHI: A builder was arrested by the economic offences wing (EOW) for defrauding several NRIs of over Rs 14 crore। The accused, Naresh Chandra, had reportedly started a charitable trust called Human Care Medical Charitable Trust, and lured NRI doctors to invest money into the trust.

"He had got the trust registered with the Registrar of Societies and showed in the papers that the trust had acquired land in Dwarka to construct a charitable hospital," said Prabhakar, deputy commissioner of police (EOW)।

He convinced a handful of doctors settled abroad to invest in the trust and managed to collect a sum of Rs 14 crore constructing a hospital। But after giving the money, investors found that the building was coming up slowly and that the quality of construction was not up to the mark. After confronting the accused, one of the doctors filed the complaint.

Investigations found that the builder was using inferior quality material and showed inflated bills. He was transferring the balance amount into his own company, M/s Nidhi builders (I) Pvt Ltd. He was arrested on April 6 and is now in judicial custody.

Online trading Safe for NRI Investors

At a high-profile launch, Indian firm UTI Securities Limited and its associate company in Bahrain, Indo-Gulf फिनान्सिअल सेर्विसस Limited, explained the benefits of their new audience of business figures। Promoting the website usectrade as valuable means for NRIs to oversee their portfolios, investors were told the volume of stock transactions made online will soon overtake that of those conducted through a broker।

"There are a lot of disadvantages in conventional trading, as far as the communication part is concerned," UTI Securities vice-president and e-brokering head Rakesh Singh told the GDN। "Typically a broker handles a number of customers and this can range from 30, to 50, to 100। "Suppose a customer calls a broker at a particular time, but a broker only has three or four lines and if he has 100 customers then 100 people could be calling him at a similar time.

"But in ऑनलाइन त्रदिंग the customer can trade at ease in their home, in a cyber-cafe, or by using the internet in their offices," he added. High returns on investments in recent years have seen the number of NRIs investing in stocks increase, said Mr Singh He said that the new website would offer an easy to use means for investors to acquaint themselves with the Indian market. "It's basically an online त्रदिंग product whereby customers do not have to call any broker or anything, the customer can just log-in to the site and make investments in products ranging from equity investments, to Initial Public Offerings (IPOs) and mutual funds," he revealed.

The site charges a flat ब्रोकेरागे fee of 0.5 per cent including1 transaction costs, a competitive rate compared to some brokerage houses, which charge 1.25pc, said Mr Singh. He said that Bahrain was the financial hub for the entire Gulf region and an upcoming market. "As far as the population is concerned, 25 per cent of the population in Bahrain are Indians, so we are looking out for these customers," said Mr Singh. "There are a lot of NRIs based in all the GCC countries, and the biggest market to date was Dubai, but now Bahrain is going to be the financial hub for the entire Gulf so there will be a lot of investment from here."

Indo Gulf Financial Services Ltd is licensed by the Central Bank of Bahrain as a category two investment business firm. Mr Singh outlined ambitious plans for the firm, revealing it had set itself the target of having 500 NRI customers in Bahrain after one year, and giving an insight into the growing influence of online trading. "In 2003 the online trading accounted for only four per cent of the market, and now it has increased to 27pc," he said. "At the moment, there is a 100pc increase every year in the online trading population."

NRI Buying Homes, Properties more Easliy

NRIs are now buying Properties, homes in their very own homeland in more relaxed way than ever for non resident status people abroad. Reasons are RBI relaxed and imroved norms for non resident indians to buy property in India.

1. Reserve Bank of India has spelled out clear norms for NRIs to invest in different kinds of property. NRIs holding Indian passport do not require prior permission of RBI to buy residential or commercial immovable property in India.


2. The purchase consideration may be paid either by remittance of funds from abroad through normal banking channels or out of NRE / FCNR / NRO account.
   
   
3. Money can be repatriated abroad if bought with the foreign exchange earned abroad. That too, only in the sale of two residential properties but any number of commercial properties.

NRI’s of Indian nationality do not require any permission for acquisition, transfer or disposal by way of gift of immovable property which is not a farmhouse or agricultural land or plantations property. Declaration on form IPI 7 for acquisition of commercial property for carrying on any industrial, commercial or trading activity by their proprietary / partnership firm in India is required to be filed with RBI within 90 days from date of purchase.

Mr. NAgarajan, editor of Indian Real Estate says, -

"There is huge demand for professional property management services from the NRI segment which has not been adequately met. “These days NRIs do not trust their relatives and want to outsource this function to professional companies to do the renting, leasing, taking care of the documents, maintenance etc. once this function is addressed, there will be a surge in NRI investments."

This corroborated by Amit Mavi, who markets properties by leading developer group, Unitech. “The NRIs prefer investing what they save in their home country. It is generally a long term investment and not a speculative one. This investment also acts as the vacation home for these NRIs when they come to India and also a home from a long term end user perspective.

Source: Economics Times

Interest hike means twin benefits for NRIs

The hike in interest rates in India gives NRIs an opportunity to reap twin benefits।

The Reserve Bank of India (RBI) jacked up interest rates March 30 to control inflation since this is the number one priority of the government। The unexpected increase in interest rates sent a Tsunami to the Indian stock market when it opened April 2 as it plummeted by over 600 points in a single day. The market recovered quickly but the yo-yo effect has scared the investors.

For the long-term investor, this is the time to buy। And NRIs have amply demonstrated this response when they pumped nearly Rs.1 billion in just two months of February and March. In January they were sellers. Compared to Rs.80 million they invested in the same period last year, the trend now shows that NRIs are bullish.

Earlier, NRIs were not investing due to high rupee-dollar rate and valuation concerns। When the Indian market corrected, they returned. This was not the case when the rupee appreciated and the market was at a new high. Now shrewd NRI investors are on the lookout for entering the bearish market. The mutual funds have also eased off and become attractive for the investor.

From April 2006 to January 2007, portfolio investment by corporate bodies, foreign institutional investors (FIIs) and NRIs was $6।8 billion. Will the FIIs and NRIs pull out in the bear run? Or invest for the long term? Mass exodus from the market remains a far-fetched possibility due to solid basic economic fundamentals and economy is still expected to grow around 7-8 percent. This interest rate hike will cool the overheated Indian economy.

The market is expected to stay bearish because the cost of borrowing money has gone up for the quoted companies। Thus the prices of their goods are likely to go up. This means lower consumer demand. In due course, all this means lower company dividends and so lower returns on the equity investment.

In the current uncertain scenario, it makes sense for the conservative NRIs to wait a little because the market can go down further। Since no one can time the market, the best approach is to gradually enter the equity market and mutual funds over the next few months.

The second benefit for NRIs lies in buying property। Many NRIs dream of buying a home in India for various reasons but astronomical prices ensured that these dreams remained just dreams. Now NRIs can make them a reality by monitoring the easing of prices.

High interest rates mean high mortgage payments; thus the property prices should decline as the buyers find it difficult to pay the high monthly instalments। But not in the short-term as most projects started over a year ago have been sold out. Other housing units in recently launched projects with high prices have also been mostly sold out. Builders will be wary of launching new projects with higher costs unless they have substantial local or foreign funds.

The first effects of this trend could be felt after three to six months as most property developers have the capacity to hold on to their new housing for the short term। Another factor is the two to three months taken for approval of home loans. The ones in the process may most likely continue after increasing the repayment period but new buyers will be careful before taking on higher mortgage payments every month. Thus the demand for housing should slacken and NRIs can move in.

If an NRI wants to buy a house in the metros, the prices are not going to ease off just yet। Property developers in the metros - Delhi, Mumbai, Chennai, Kolkata and Bangalore - have deep pockets and can maintain their high prices for over six months or longer. And they have overseas funds to develop new projects.

But the developers in Tier Two cities and towns will have to ease off earlier and lower their prices if they have to survive। Prices are expected to decline in the second half of this year in these cities and towns. The price decline in these Tier Two cities could be steeper than the metros.

Gulf NRIs stand to benefit the most। Most NRIs from the Gulf region usually want to buy a home for themselves and invest in real estate. Since their target towns fall in Tier Two or even smaller townships and villages, they stand to benefit the most from lower housing prices. Since metros have new companies opening offices and requiring housing for their executives, their prices will hold on for a while.

Now is the time for NRIs to wait and watch and reap the twin benefits of interest rate hike.

NRI foundation

The Comptroller and Auditor General (CAG) has said that the Gujarat government handed over 5।77 lakh square metres of land, near Gandhinagar, to Puri Foundation, run by Nottingham-based NRI Natt Puri, "at a concessional value of Rs 75.02 lakh against the market value of Rs 28.85 crore." The foundation is setting up an Advance Research and Development Centre for Information Technology and Biotechnology on the allotted land.

The CAG scrutiny has revealed that the land was allotted in June, 2001, "without obtaining the authorisation from the department concerned which is a prerequisite for allotment of land for setting up higher educational institutions। Concessional rate was also applied to land meant for construction of residential houses"। Despite the fact that Foundation was not registered as a society in Gujarat State, under the Registered Societies Act, 1960। CAG said the Foundation did not start construction of the centre, nor did it finish completing it within three years, as required। The CAG further said, though the Foundation committed breach of several conditions, the government did not do anything about it. In yet another case CAG says, the Ahmedabad collectorate allotted 0.60 lakh square metres of land on concessional rate to the Nirma Educational and Research Foundation for setting up of management complex for architecture and post-graduation in computer, resulting in a loss of Rs 2.85 crore. Besides, citing another such case, it says, "The Ahmedabad collectorate allotted 21,300 sq metres of land to Bharat Hotels at Rs 7.39 crore in November 2005.