Indian expats set to incur losses as rupee strengthens

August, 04th 2011

Dubai: Non-resident Indians (NRIs) in the UAE could see a drop in savings as the rupee gets stronger and interest rates back home sharply increase.

The rupee falling below the Rs12 psychological barrier last week against the dirham has come as a rude shock to the community which is already reeling under the impact of the Reserve Bank of India's (RBI) steep interest rate hike by 50 basis points.

Debajyoti Ray Chaudhuri, Chief Executive Officer of State Bank of India in Dubai, told XPRESS, "This would affect borrowers, especially those who have home loans, because [repayments] or equated monthly instalments (EMIs) will go up due to the hike in interest rates. Also, higher remittances have to be made to take into account the strengthening of the rupee.

"If banks pass on the 50 basis point hike by RBI in key interest rates to home loan borrowers, the EMI will go up by Rs300 (Dh25) for a Rs1 million (Dh84,033) home loan over a 15-year period."

Chaudhuri said while there is a spurt in remittances when the exchange rate is perceived to be favourable, the vice-versa is not always true because Indians in this part of the world have strong ties with their home country and remittances are generally for investment or for sustenance purposes.

"Those who make remittances for sustenance purposes get affected as their families get a lesser rupee amount and accordingly they may have to compensate this by remitting a larger portion of their salaries," he said.

Drop in remittance

V.K. Bhatia, Chief Manager of the Representative Office of the Punjab National Bank (PNB) in Dubai, said it is the low-income Indians who will be affected as they will be left with less to send back to their families back home.

"However, to be optimistic, if RBI is able to rein in inflation, purchasing power will be neutralised," he said. S. Karunakaran, Additional General Manager and Head, Business Development, Al Rostamani International Exchange, said, "Most NRIs are holding back their money to make use of a better exchange rate which resulted in considerable reduction in the remittances business. However, usual remittances to meet monthly expenses and liabilities are happening as they were."

He added: "The Indian rupee remained near its weakest level in a week on Wednesday as the dip in Asian equity market stoked fears of foreign fund outflows."

The rate for August 3 was Rs12.05, he said, adding that it could touch Rs12.15 in the near future provided Euro and Indian stock markets decline further.

Source: Gulf News