Rising interest rates and a stable rupee have lured more non-resident Indians (NRIs) to invest in various deposit schemes offered by Indian banks. Recent data from the Reserve Bank of India (RBI) revealed a significant increase in fresh inflows under non-resident deposit schemes, reaching USD 6.1 billion between April and October 2023 compared to USD 3.05 billion in the corresponding period last year.
The surge in NRI deposits was chiefly driven by a notable rise in flows into foreign currency non-resident (FCNR-B) accounts. Inflows into FCNR (B) deposits soared to USD 2.06 billion during April-October 2023, a substantial increase from an outflow of USD 814 million during the same period in the previous year. Similarly, non-resident external rupee accounts (NRE RA) witnessed increased flows, reaching USD 1.95 billion compared to USD 1.67 billion in the previous year.
Among these deposits, the highest inflow from NRIs was observed in non-resident ordinary (NRO) accounts, totaling around USD 2 billion, although marginally lower than the USD 2.19 billion seen in the same period the year before.
Madan Sabnavis, Chief Economist at Bank of Baroda, attributed the upsurge in NRI deposits to the higher interest rates offered by banks and the stability of the rupee against other currencies.
While NRE accounts facilitate the transfer of foreign earnings to India for non-residents, NRO accounts are designed to manage domestically earned income. Both types of accounts maintain deposits in rupees. On the other hand, FCNR (B) accounts are fixed deposits held in foreign currency, offering NRIs the advantage of retaining funds in foreign currency to mitigate currency depreciation risks. These deposits ensure full repatriation of the principal amount and interest earned.
Presently, domestic banks are offering interest rates ranging from 6.5 per cent to 7.5 per cent on various NRE term deposits below Rs 2 crore. The State Bank of India (SBI), the largest lender in the country, offers an interest rate of 7.1 per cent on NRE term deposits with a 400-day tenor for deposits below Rs 2 crore.
For NRO deposits, banks offer interest rates between 3 per cent to 7.1 per cent for different maturities. FCNR (B) deposits in US dollars yield interest rates ranging from 4 per cent to 5.7 per cent for deposits up to USD 250,000 and vary based on maturity.
The RBI's December bulletin mentioned the rupee's low volatility compared to other emerging market economies, despite increased US treasury yields and a stronger dollar. This stability might have contributed to the attractiveness of NRI deposits.
Additionally, bankers highlighted a resurgence in NRI flows, especially from the Middle East, post-Covid as people resumed overseas employment, contributing to the surge in NRI deposits.