NRIs to invest in India following the global crisis
By Vaibhav Aggarwal
Oct 14, 2008
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India's Federal Bank CEO and Managing Director, M Venugopal feel that this is the right time to invest in India. He says that the non-residential Indians should invest in India as the exchange rate has risen following the global financial crisis.

"I will ask NRIs (non-resident Indians) to take advantage of the current situation of high exchange rates and interest rates," Venugopalan said in Qatar.

Indian banks are seen at a safer position during the current global financial crisis due to their "insignificant" exposure to the US markets. These banks also did not have a large presence of structured products, which were responsible for the crisis in the West.

Venugopalan says that it is advisable to invest in non-resident ordinary (NRO) deposits or relatives' domestic deposits as rates are higher now.

Presently, NRO deposits of less than one year yields an annual interest of 10.6% and those of less than three years fetch 10.5% while non-resident external (NRE) savings deposits earn only a little over 4%.

"Even after tax is factored in, the return on NRO deposits is attractive (the net interest rate will be 9.5-9.6 percent)," the Federal Bank chief said.

He said that there was serious liquidity problem in India as well. "This is mainly because of the non-availability of dollar. Foreign funds are exiting India following the global credit crisis and there is no perceptible cash inflow," he said.

He also believed that the sub-prime crisis which started in the US, spread to Europe and then engulfed the rest of the world was fuelled as central banks across the world were overleveraging.

In India, the Reserve Bank of India decided to curb the liquidity of banks by raising cash reserve ratio (CRR) that helped it in regulating lending by Indian banks.

Uday Kotak, Vice Chairman and Managing Director of Kotak Mahindra Bank, still expects the current global pain to remain for the next three-five years, particularly, in the United States (US), Europe and Japan.

He sees the Indian markets bottoming out when FII investments in India come down to a range of USD 40-60 billion. He estimates the Quarter-on-Quarter GDP at the end of the year to be at 7%-7.5%. However, he sees it slowing down to 6%-6.5% by early next year unless there is a significant stimulus in terms of liquidity and drop in interest rates.

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