Fresh NRI deposits double to $6 billion! Why NRIs are parking more forex in India this year
Overall, fresh NRI deposits reached $6 billion during April-October 2023, doubling from $3 billion in the corresponding period the previous year, according to an ET report. Madan Sabnavis, chief economist at Bank of Baroda, attributed the surge in fund flows to relatively higher interest rates.
State Bank of India’s FCNR (B) returns were over 5%, while American banks offered less than 3% returns. Even the average return on deposits in Gulf countries, where the majority of NRI deposits originate from, is estimated to be lower than what Indian banks offer. Additionally, FCNR (B) deposits eliminate foreign currency risk for depositors as it is borne by the banks.
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NRIs hedging risks
To attract foreign currency flows, the RBI temporarily waived cash reserve requirements and statutory liquidity ratio requirements on fresh inflows under the FCNR schemes. This measure not only helped banks earn extra income but also allowed them to divert resources to higher-yielding assets.
Sabnavis highlighted that the increase in FCNR (B) inflows is also due to the resumption of work opportunities abroad post-Covid, leading to more NRIs depositing funds. However, bankers cautioned that the pace of inflows in the first half of the current fiscal year may not sustain.
Meanwhile, another deposit option, the non-resident external (rupee account) or NRE (RA), remains open for NRIs willing to bear the currency risk. When the rupee strengthens against the dollar, this scheme becomes an attractive choice.
Inflows under the NRE (RA) scheme modestly increased to $1.95 billion during April-October 2023-24 from $1.68 billion in the same period last year. Bankers noted that inflows under this scheme have picked up since August, as there is a belief that the rupee might not depreciate significantly against the dollar. Some analysts even anticipate a stronger rupee in the coming year.