Non-resident Indians (NRIs) depositing money in rupee-denominated saving accounts with Indian banks would get higher returns from 1 April 2010 as interest on them would be calculated on a daily basis. The new facility would be available for NRE and NRO savings accounts.

At present, these account holders get interest on their minimum balance held during tenth on the last day of a month.

While NRE accounts could be opened from money repatriated from outside, NRO accounts contain money received from within India.

''We advise that on a review, and in view of the present satisfactory level of computerisation in commercial bank branches, it is proposed that payment of interest on savings bank accounts (NRE and NRO) by scheduled commercial banks would be calculated on a daily product basis with effect from 1 April 2010," the Reserve Bank of India (RBI) said in its notification.

In order to ensure a smooth transition, banks may work out the modalities in this regard, the RBI said.

Last week, in its annual credit policy, RBI had also raised cap on loans against foreign currency non-resident (FCNR-B) and non-resident external (NRE) deposits to Rs1 crore from Rs20 lakh.

The bank has taken several steps to ensure higher flow into foreign currency accounts, including increasing the interest rate cap thrice since September 2008.

This has resulted in a net inflow of NRI deposits of $2.11 billion during the first nine months of 2008-09, against a net outflow of $931 million in the corresponding period a year ago.

Speaking about NRI flows in a recent media interview, KV Kamath, MD and CEO, ICICI Bank, said ''We have NRI flows - about $45 billion has already been invested and I think another $40-45 billion is waiting to be tapped. All that it needs is appropriate pricing. If the pricing on NRI deposits is freed up, we would have a significant amount of foreign currency.''

RBI's move is seen as a step in the right direction as NRIs usually park their money outside as they get more interest than the Indian banks.

Interest rates in West Asia are much higher than what Indian banks are paying and a large chunk of NRI deposits come from that region.