Increasing number of UAE-based non-resident Indians (NRIs) are opting to open and remit funds into non-resident external (NRE) accounts due to it being tax free and deposits earning high interest rates, according to a banker.
“We have seen a substantial increase in the number of applications for NRE accounts and even remittances in 2012. The number has, however, dwindled for non-resident ordinary (NRO) accounts since interest income is taxed at source,” Mehul Dave, Chief Manager, Bank of Baroda, Dubai, told Emirates 24|7.
The preference for NRE accounts can be gauged from the Reserve Bank of India’s April-October 2012 data which reveals fund flow to these accounts rose to Dh42.61 billion ($11.61 billion) compared to Dh5.98 billion ($1.63 billion) during the same period last year, reflecting an increase of over 600 per cent.
In terms of remittances, Bank of Baroda has witnessed a 15 per cent increase this year over 2011, Dave said, adding it did not include remittances carried out by exchange houses.
“Our currency exchange rates are at par with what the exchange houses offer here. Besides, we don’t charge Dh15 if funds are remitted to any of our branch across India from the UAE. These measures have helped in increasing our remittance volume.”
A World Bank report, released in November, said India was set to once again be the top recipient of remittances from its expatriate workforce, with the country estimated to gain $70 billion by way of inward remittances this year, a fifth more compared with $58 billion it received in 2011.
Last year December, the Indian apex bank deregulated interest rates on NRE and NRO accounts to allow banks to mobilise non-resident deposits. The move resulted in banks offering interest rates as high as 10 per cent to NRIs.
Although the interest rates have come down now, bankers say NRE accounts will flourish as interest rates continue to remain higher than any other country. In the UAE, fixed deposits earn interest rates of not more than six per cent.
“The Reserve Bank of India recently issued a circular advising banks to offer ‘better’ rates to retail investors than bulk investors. We offer as high as nine per cent on deposits for less than Rs10 million. Moreover, we even offer loans in the UAE for deposits made back home,” Dave said.