Higher interest rates and stable rupee have attracted more non-resident Indians (NRIs) to deposit money in various deposit schemes offered by domestic banks.
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Fresh inflows under various non-resident deposit schemes doubled to $6.1 billion in April-October 2023 from $3.05 billion in the same period of the last year, a recent Reserve Bank of India (RBI) data showed.
The surge in NRI deposits was primarily on account of a rise in flows into the foreign currency non-resident, or FCNR(B), accounts.
Inflows into FCNR (B) deposits increased to $2.06 billion in April-October 2023 compared to an outflow of $814 million during the same period of last year. In the case of non-resident external rupee accounts, or NR(E) RA, flows jumped to $1.95 billion compared to $1.67 billion in the same period last year.
During the period, the highest deposits from NRIs came into non-resident ordinary (NRO) accounts at around $2 billion. In the same period of last year, flows into NRO deposits stood at $2.19 billion.
“Higher interest rates offered by banks could be the reason for the jump in NRI deposits. The stability in the rupee vis-a-vis its other peers has also resulted in higher accretion,” said Madan Sabnavis, Chief Economist, Bank of Baroda.
While the NRE account is an account of a non-resident Indian to transfer foreign earnings to India, the NRO account is to manage the income earned domestically. In both the accounts, the deposits are maintained in rupee. FCNR (B) is a fixed deposit which is held in foreign currency.
It provides an option for NRIs to retain their money in foreign currency, and so there is no risk of currency depreciation. Under this scheme, the principal amount and interest earned is fully repatriable. FCNR(B) deposits can be maintained in different currencies, including the dollar, pounds sterling and the euro.
Currently, domestic banks are offering interest rates in the range of 6.5 per cent to 7.5 per cent on various NRE term deposits below Rs 2 crore. The country’s largest lender State Bank of India (SBI) is offering an interest rate of 7.1 per cent on NRE term deposits with 400 days tenor for NRE deposits less than Rs 2 crore.
Banks are offering interest rates in the range of 3 per cent to 7.1 per cent on NRO deposits with different maturities. On FCNR (B) deposits maintained in US dollars, the interest rate offered varies from 4 per cent to 5.7 per cent on deposits up to $a250,000 and have different maturities.
In 2023, the rupee exhibited low volatility compared to its emerging market economies (EME) peers, despite elevated US treasury yields and a stronger US dollar.
On a trade-weighted basis, the nominal value of the rupee has undergone an appreciation of 1.6 per cent during 2023-24 (April-December 8, 2023). Adjusted for inflation differentials, the rupee’s appreciation is even higher at 4.5 per cent. Over this period, the US dollar has appreciated by 1.5 per cent against a broad index of currencies, the State of the Economy article published in the RBI’s monthly bulletin for December said.
Accretion in NRI deposits can also be attributed to Indians going to work overseas again, especially in the Middle East, for jobs post-Covid, said a banker.
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“Due to Covid impact, NRI flows were low during the last few years as many people moved back to India. After the COVID scare was over, people have again started going outside India for work, especially from the beginning of 2023, resulting in a jump in NRI deposits,” said a banker.
