By M.G. Radhakrishnan
God's Own Country alone appears blissfully free from the gloom spreading across the country on the rupee's fall from grace. Commercial banks in Kerala and families of the state's 25 lakh-strong diaspora-based in the Gulf and US-are enjoying the windfall caused by the unabated free fall of the rupee's value against the dollar. As the rupee hit an all-time low of Rs 56.24 against the dollar in last week of May, registering only modest recovery subsequently, the Indian expat community in the Gulf and US embarked on a feverish gold rush to take advantage. They are busy sending money to their families back home. The slide has also triggered record appreciation of other currencies in the Gulf region.
The depreciation of more than 25 per cent in the past eight months is the sharpest decline among emerging market currencies. The rupee's value fell from Rs 44 against one dollar in August 2011 to Rs 56.24 by May 31, 2012. If a non-resident Indian (NRI) had sent $1,000 to his family in India in 2011, it would have fetched them Rs 44,000; today they will get at least Rs 10,000 more.
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To attract NRI remittances, commercial banks in Kerala are competing with each other to peg up the interest rates for tax-free non-resident external (NRE) term deposits, which rose from less than 4 per cent in December 2011 to 10 per cent in January 2012, following the Reserve Bank of India's deregulation of the rates. The windfall is expected to help Kerala end up with more than Rs 60,000 crore by the end of 2012-four times more than its annual state plan.
"Ever since the rupee began to depreciate, there has been an unprecedented rush by Indian expatriates to currency exchange centres in the Gulf. Many have even taken loans from banks in the Gulf to send money to India and take advantage of the difference in value and interest rates," says K. Manoj Kumar from Kottayam. He works at a bank in the Gulf, and says this has ensured stiff competition among exchange companies in the Gulf to offer the best rates. "I got Rs 15.50 for one dirham, which even grey markets do not offer," he adds.
Banks in Kerala are overflowing with remittances from expat clients. Total NRI deposits with banks rose from Rs 31,585 crore in 2008 to Rs 41,719 crore in 2011 and are likely to touch Rs 50,000 crore in 2012. "Our non-resident deposits have grown by nearly 100 per cent this year, thanks to the new developments," says P. C. Cyriac, chairman of the Kerala-based Federal Bank.
The fall in rupee value has brought considerable dividends to exporters too. Spices such as pepper and cardamom have registered a rise in export volume. The happiest is the FMCG sector as the money inflow has fuelled Kerala's consumption expenditure. Kerala is today one of the largest markets for luxury cars, jewellery and diamonds, expensive home appliances and electronic gadgets. According to auto industry sources, the sales of luxury cars registered a 35 per cent rise in Kerala in 2011-12
Many in Kerala, however, feel the good times may not last. "If there is no proportionate increase in the demand for credit and loans, banks would be burdened with a surfeit of costly funds. I fear a fall in credit deposit ratio," says Cyriac. He thinks the free fall of rupee will harm the banks in the long run. Exporters too are sceptical about the sustainability of the happy times. Kerala's booming construction sector too is not impressed by the rupee's fall. But for now, it's raining money in Kerala.
Reproduced From India Today. © 2012. LMIL. All rights reserved.
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