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January 18, 2000 Part I: Rich returnees from the Middle East face uncertain times in Kerala | George Iype in Kochi
Banks in Kerala are flooded with inert NRI deposits
from the Gulf. The government does not know how to
utilise them!
For more than 20 years now, the Gulf-settled
Malayalees have been 'have-money-will-spend' types. However, while they earned a lot, they never invested wisely. Many built fabulous concrete houses, the dream of many a family.
Constructing houses, booking apartments, buying
properties, lands and gold and investing in real
estate have been the traditional investment avenues of
the Gulf migrants.
But in the last few years, there has been a remarkable
change in the consumption pattern in the exclusive
Gulf pockets across the state. Concrete, marbled
bungalows that distinguish Gulf Malayalee
identity flank the National Highway 47 that runs
through Kerala. But their construction
is incomplete.
“Those houses will be never built to completion and
perfection because suddenly many Gulf Malayalees have
realised that it was foolish of them to construct huge
homes,” says K Haridas, a prominent builder in Kochi.
Builders like Haridas have been badly hit: in
the last few years, construction activity has shrunk
almost by half.
The other favoured investment option of the Gulf
employees was acquiring land. But in the last four years,
prices of land have stagnated in the state. Official figures indicate that land deals in Kerala are down by nearly 45 per cent.
The dismal scenario has affected real estate scene too. Supply outstrips demand: apartments and shopping complexes have no buyers.
The Gulf returnees no longer indulge in ostentatious display of wealth. Belt-tightening is the millennium mantra for these once-prosperous people. Driven by the realisation that big money days are a thing of the past, they
are seeking to secure their future by depositing whatever that remains of their earnings at the 'safest destination' -- the banks.
“Yes, these insecure people are tucking away their
money in banks. That is the reason why the commercial
banks in Kerala now flush with cash,” says P K Karunan, manager of a private
bank in Kochi.
In the last one year, the government led by the Left
Democratic Front and the commercial banks in the state
have been facing a problem of plenty as expat
remittances touched an all-time high of Rs 142.81
billion by the middle of 1999.
Although NRI deposits in the banks have modestly
increased in the last few years, in 1998 and 1999
there has been a massive influx of expat funds. The
NRI deposits in the state totalled Rs 68.86 billion in 1995,
Rs 81.03 billion in 1996, Rs 101.78 billion in 1997 and
Rs 127.35 billion in 1998.
Banking officials point out that the crash in
speculative investment avenues like stock market, real
estate and private financing firms are the principal
reasons that contributed to the enhancement of bank
deposits.
There is another pressing reason why the Gulf NRIs
are running to the commercial banks with their monthly
earnings. Nearly 80 per cent the 'Gulf Malayalees' do
not earn enough to make any investment in real estates
or businesses here. So the best option for them appears to be to
deposit their savings in banks.
According to official statistics, close to 80 per
cent of Keralites working in Saudi Arabia earn less
than 1000 Saudi riyals (about Rs 11,610) a month.
“I think the Gulf Malayalees are depositing money in
banks for two reasons. First, the fear that they would
one day return to the state jobless. Second, there are
not many other investment options in an
industry-starved state like Kerala,” points out K K
Venugopal, an economic consultant, who is now advising
a host of NRI businessmen to set up industrial
projects Kerala.
But this unprecedented influx of deposits from NRIs in
commercial banks in the industry-starved state has
forced the government to set up an NRI Industrial
Investment Corporation to effectively channelise the
expat funds.
The government has entrusted I-Kin, a joint venture
between ICICI and the Kerala Industrial Infrastructure
Development Corporation (Kinfra) to conduct a detailed
feasibility study on the proposed NRI Industrial
Investment Corporation.
I-Kin, a 76:24 joint venture between ICCI and Kinfra, will also advise the
government on how to productively utilise the
burgeoning NRI deposits for infrastructure and
developmental projects in the state.
The whopping NRI deposits, and the
lack of any infrastructure and investment projects to
divert these funds, for productive use have put the
banks in Kerala into a low credit-deposit ratio.
While the NRI base accounts for more than 50 per cent
of bank deposits, the absence of any industrial
promotion led to the state’s C-D ratio to remain a
stagnant 43.06 per cent as on March 31, 1999.
Thus, the Reserve Bank of India has asked the banks in
the state to achieve a C-D ratio of 50 per cent in the
current financial year.
However, the state government accuses that banks alone
are to be blamed for the poor C-D ratio as they are
often reluctant to lend the NRI deposits for projects.
But banks blame that there is an acute government
apathy in planning and launching viable industrial
projects to utilise the expat funds.
While the row between the government and the banks
continues, officials concede that the maximum
utilisation of the Rs 142.81 billion NRI deposits now
will depend on the viability of various industrial and
infrastructure projects that I-Kin would recommend to the
government.
ALSO SEE
Oct 1998: Flow of NRI deposits peters to a trickle
Oct 1999: Kerala moots sensible investment of inert NRI deposits
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