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International Investing / India (BSE)


Subject:  Re: How To Buy Stocks On The BSE? Date:  8/24/2007  8:12 PM
Author:  bhusach Number:  203 of 244

My understanding is that the CD's (or "fixed deposits," as they are called in India) earning 9.5% are in Indian rupees (not USD). Moreover, if the amount of interest earned per year is more than Rupees 5,000, then the holder needs to pay a tax on the interest earned. The tax is generally deducted automatically by the bank (its called TDS -- tax deduction at source). I'm unsure of the tax rate, though.

Although the interest rate seems high by U.S. standards, one has to view it in the context of inflation in India. The "official" government figure for inflation is about 5%, but anyone in the big metro's will tell you that in reality it should be much more than that. I visited India in December 2000, and then in December 2006. In these six years, the prices of many products in the market actually more than tripled or quadrupled.

There is no "sinister element" in these interest rates. However, Indians make a distinction between public banks (in which the government holds a majority stake) and private banks. The biggest name in the former group is State Bank of India (SBI), whereas the two biggest names in the latter group are ICICI Bank and HDFC Bank. There is a belief among Indians that the public banks are "safer" than the private one's in that the government will not let them (esp. SBI) fail.
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