Rupee impact: NRIs pile Rs 49,000 crore burden on banks

After falling credit demand, rising bad loans and poor profit margins, Indian banks have something more to worry about: NRI deposits.

According to a report by SMC Global Securities, banks might have to cough up an additional Rs 49,000 crore, or $9.47 billion, on the deposits NRIs hold in Indian banks because of the rupee’s fall against major currencies.

[caption id=“attachment_143136” align=“alignleft” width=“380” caption=“For NRIs meanwhile, the rupee’s fall is welcome news. Andrew Middleton/Flickr”]  [/caption]

The rupee has depreciated by 18 percent against the dollar since July. That has, naturally, translated into an increased burden on domestic banks in terms of and interest and repayment of these deposits. At the end of 30 June, NRI deposits stood at a whopping $52.897 billion, said SMC Global - a hefty 9.6 percent of the total net worth of the Indian banking system.

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In addition, almost 82 percent or $43.434 billion is in the nature of short-term deposits, which are expected to mature by 30 June 2012.

The big problem is that if investors decided to take advantage of the rupee’s weakness and opt to redeem the above-mentioned amount, Indian banks will come under heavy pressure. Of course, while banks would have largely hedged such exposure with other dollar-denominated business revenues, the possibility cannot be wished away, SMC noted.

For NRIs meanwhile, the rupee’s fall is welcome news. On Monday, _Firstpost_ quoted a Business Standard article on howKeralites living in the Middle East were sending money back home as the fall in the rupee’s value allows them to remit more in Indian currency.

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For more details of the SMC Global Securities report, click here .