Surge in remittances from UAE to India as rupee falls towards all-time low

Mumbai // Remittance companies in the UAE have experienced a surge in the flows of cash being sent to India by wealthy Indian expats over the past few days as the rupee has weakened.

This comes as some analysts are predicting that the rupee could fall towards all-time lows over the coming weeks, which would lead to a further spike in remittances.

The rupee, which slid to a four-month low of 63.76 against the dollar on Monday, was at 63.20 on Tuesday compared to levels of about 62.30 mid-month, amid concerns about the impact on Indian markets of a retrospective tax for foreign portfolio investors.

“Last few days, we have seen a 100 per cent jump in remittances on a daily basis,” said Ashwin Shetty, the senior vice president of treasury at UAE Exchange. “Whenever the rupee depreciates, a huge volume is there going up.”

This sharp increase in volumes from the UAE to India was largely being driven by high net worth individuals remitting “substantial amounts of money”, Mr Shetty said.

“You can see individual remittances going up to $1 million dollars. They come only once in a while – when the rupee depreciates.”

He expects this trend of higher flows to continue over the coming days, he added.

The dirham is pegged to the US dollar so any depreciation against the dollar allows non-resident Indians to buy more rupees per dirham.

The UAE dirham on Tuesday traded at about 17.21 rupees.

On Friday, the US bank Citi issued a note predicting that the rupee could weaken to 68 or 69, potentially hitting 69.60 against the dollar in the next six to seven weeks, Reuters reported. This would be a record low, beyond the rupee’s historic low of 68.85 in August 2013.

“It’s a little difficult to predict but there’s no reason why it couldn’t go to that level,” said Sudhesh Giriyan, the chief operating officer of Xpress Money, a remittance company headquartered in Abu Dhabi. “All too suddenly the rupee dropped.”

He said white collar workers had been taking advantage of the situation.

“They have been unlocking the funds that they have been holding back over the last few months,” said Mr Giriyan. “Also, the fact that banks are there to give loans to the white collar segment. Loans are going to be taken. A lot of banks are going to be calling again, luring customers to take loans. This is going to help in pumping more funds into India.”

Non-resident Indians (NRIs) often borrow money at relatively low interest rates in the UAE to send to India, where they can potentially earn higher returns, when the exchange rate is weak.

Property, stocks and fixed deposits – which offer interest rates of about 9 per cent – were the most popular investment options for these flows, he said.

A further decline in the rupee would certainly lead to a rise in cash being invested in India by NRIs in the UAE, but he pointed out that there was some uncertainty over how far the rupee might slide.

“It all depends on how the whole situation gets managed by all concerned, including the regulator in India. There are interventions at times by the regulator to pump in dollars into system and the rupee stabilises once again.”

He added that if it were to fall to levels of about 68 to 69, it would take a few weeks or months.

Mr Shetty said that the rupee could weaken to 65.50 against the dollar but he did not think it would soften more than that.

Adeeb Ahamed, the chief executive of Lulu International Exchange, said he expected the flow of remittances to India “to steadily increase over the coming days”. But he urged NRIs to “refrain from borrowing money to remit back home, which is quite prevalent during this scenario, since it might equate to financial burden in the future”.

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