Another NRI friendly step taken by RBI – NRE/NRO accounts freed up

Source - Moneycontrol

RBI on Friday freed up interest rates on non-resident external (NRE) accounts and non-resident ordinary rupee (NRO) accounts in a bid to attract dollars.

With 6.5% interest for NRE term deposits, they will be found to be more attractive by non-residents because there is no taxability in NRE deposits and full repatriation takes place.

Federal Bank has already hiked its interest on NRE term deposits to 6.5% from 3.82% previously.

In the last few years, we saw an increase in the rate of growth of NRO deposits because NRO deposits attract the interest rates as applicable to resident deposits. For example, one year NRO deposit carries a rate of 9.75% whereas the new rate announced for NRE deposit is 6.5%. Now, 6.5% for NRE term deposits will be found to be more attractive by non-residents because there is no taxability in NRE deposits and full repatriation takes place.

Already this year we have seen a growth of more than 20%. With the revision in the interest rates on NRE deposits, we expect the growth to be substantially higher. We cannot say what will be the exact rate of growth, but it is expected to be substantially higher. Of course the inflows to the country will increase; that is needed at the moment and that would happen.