Kerala bank coffers swell with deposits worth more than Rs 2 trillion despite COVID-19

Kochi: Banks in Kerala are flush with deposits from Non Resident Indians (NRIs) despite the uncertainty clouding the global economy due to the raging COVID-19 pandemic.

NRI deposits in Kerala banks have shown one of the highest growth rates in the recent times. The money flow has plateaued in the last few months with many NRIs, particularly in the Gulf countries, returning to the state.

But the banks are hopeful the momentum in growth will continue with revival of economic activity abroad, triggering the return of NRIs to work.

For the first time, NRI deposits have surpassed Rs 2 trillion or 2 lakh crore in the banks. As per the latest figures of state level bankers committee (SLBC) report, the total NRI deposits in the banks in the state was 2,18,247.02 crore on June 30,2020. This represents a 13.5 per cent year-on-year jump.

On June 30 2019, the total NRI deposits in the Kerala banks had grown just over nine per cent at 1,92,254.44 crore, compared to the previous year.

From June 2019 to December last year, NRI deposits grew by about 4%.

But after the spread of coronavirus in the early months of 2020, the NRI deposit level saw a sharp rise contrary to the expectations of the banks.

“Rise of dollar rates and Corona pandemic caused a rush of funds into the banks. Perhaps, they felt that bank was a safe and secure option. However, with less activities such as house construction or marriages, there has been hardly any withdrawal,’’ says Ajayakumar, assistant general manager, NRI, SBI, Kerala.

The SBI accounts for largest share of NRI deposits in the state.

The Federal Bank, which has next major chunk of NRI deposits, witnessed an 8 per cent growth after March,2020.

“NRI deposit growth in state has been reflected in our NRI deposit portfolio. Compared to other states Kerala has considerable number of skilled expatriates especially in West Asia. We also have good number of remittance tie-ups from these regions, which has helped us to become one of the strong NR franchises in home market,’’ says Nilufer Mullanfiroze, country head-deposits, cards & unsecured lending, Federal Bank.

Interest rate scenario

Interestingly, higher inflow months witnessed a drop in interest rates also.

“With the RBI slashing Repo rate 4 to 5 times, the lending rates have fallen to 4.9% from 6.5 to 7.5% a year ago. This has been reflected in the deposit rates too,’’ Ajayakumar points out.

The entire banking industry is seeing diminishing term deposit rates due to economic slowdown, says Mullanfiroze. “This means cheaper loans. We hope term deposit rates will continue in the range of 5 % to 5.50%.’’

The banks are also cashing in on the trend by introducing new schemes to attract more NRI funds. For instance, Federal Bank has launched a premium savings account for high net worth customers and is planning a special account scheme to tap niche NR segment along with a deposit scheme which has the safety of bank deposit along with the growth opportunity of equity market.

Corona effect

So how has the corona pandemic triggered the rise in NRI deposits? Economist Dr Mary George finds several reasons for this.

“Many have lost jobs abroad. So, they must have wound up everything and returned, depositing whatever they have in the banks.’’

Secondly, she feels despite falling interest rates, India is still better placed than many other countries. “The deposit rates in many developed countries are zero or 0.5 %. Also, with the weakening of rupee against dollar, it is advantageous for the Indians to convert to rupee and deposit in India.’’

The Rupee fell from 72 to 75 against the dollar during the year though it has strengthened to 73 now.

According to her, there are 35 lakh NRIs abroad as per World Bank report.

Of this, 19 per cent are from Kerala and hence the proportion of remittances to the state is also higher.

“A trend observed after COVID-19 is that as the real estate prices have crashed, many NRIs are investing in land,’’ Dr Mary George said.

April, 2020 saw the NRI deposit flow at its peak. But after June it has stabilised.

The inflow may slow down because of job losses. We may get a clear picture as to how the pandemic has affected the jobs only by next year, Ajayakumar says.

If COVID-19 helped boost NRI deposits, its effect on monthly remittances was just the opposite.

Majority of the unskilled and semi-skilled workers, especially in West Asia, send monthly remittances home. COVID-19 caused a major disruption in the monthly remittances with job losses abroad. The number of such remittances has come down though volumes have not been affected, says George Zachariah, CEO of ExtravelMoney, an online forex market place. “But that is changing with people going back to work,” he says.

The deposits are maintained by more prosperous among the NRIs. Nilufer Mullanfiroze expects the NRI deposit growth rate to exceed compared to last year. “The West Asian regions are already back to normal and new recruitment is happening. More customers in the Gulf region are now migrating to formal modes of fund transfer as they offer online modes of remittances. This also helps us to get more remittances in this FY.’’

Mode of remittances

The pandemic seems to have changed the mode of remittances with more people preferring online transfer. This may force the money transfer companies to adapt to the change, observes V George Antony, executive vice chairman of Unimoni Financial Services. “Majority of the transfers are happening online. As a result, the earlier trend of delivering money at home has stopped,’’ he says.

Since its parent company UAE Exchange closed after the COVID-19 spread, Unimoni has been carrying on with outward remittances from India mostly for education purposes. “When we resume inward remittances, we may need to rethink the mode of operations as the era of cash transactions seems to be getting over,’’ Antony says.

(P K Krishnakumar is an independent journalist based in Kochi.)