Falling rupee to cost banks Rs 49,000 cr in redemption

NRI deposits has been one of the several macro aspects of the country that has been affected by the spiralling rupee depreciation compounding the problems of market participants, observed a research house.

The total NRI deposits of all Indian banks put together is US$52.90 billion as of June 30, 2011, while the rupee has depreciated by 18 per cent against dollar till date starting July 1, 2011.  Out of this, as much as US$43.33 billion worth of NRI deposits is in the nature of ‘short term’ due for maturing by June 30, 2012 and they may not be renewed (by NRIs) if the rupee weakness persists, pointed out SMC Global Securities.

This naturally translates into an increased burden on domestic banks in repaying NRI deposits leads to additional burden of US$9.47 billion or Rs 49,000 crore in local currency.  This additional burden is a significant amount, as it works out to 9.61 per cent of total networth of Indian banking system.

SMC Global’s Strategist & Head of Research Jagannadham Thunuguntulu maintains that the banks would have largely hedged such exposure with their other dollar-denominated revenues.  However, such huge burden (of about Rs 49,000 crore) “cannot be completely wished away,” said he.

Banks, RBI and the government may need to be prepared for such eventuality of complete redemption demand of  NRI Deposits by June 30, 2012.