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In a show of confidence in the Indian economy, Non-Resident Indians (NRIs) deposited $1 billion into various NRI deposit plans in April. This marks a sharp contrast to the $150 million outflow seen in the same period last year. The total outstanding NRI deposits now stand at $153 billion, according to the latest data from the Reserve Bank of India (RBI), a report in the Economic Times said.
This surge reflects the faith overseas Indians have in the resilience of the Indian economy, which is expected to continue its world-leading growth performance this fiscal year.
There are three main deposit schemes for NRIs: the foreign currency non-resident (bank) or FCNR(B), where the foreign exchange risk is borne by the deposit-taking bank; the non-resident external rupee account or NRE(RA), where the currency risk is borne by the depositor; and the non-resident ordinary (NRO) deposit scheme.
In April, the NRE(RA) scheme attracted the most interest, with deposits totaling $583 million, while the FCNR(B) scheme saw $483 million in inflows. The NRO deposit scheme, which is intended for local use by NRIs and allows for repatriation up to a certain limit, holds an outstanding amount of $27 billion. Comparatively, the NRE(RA) has $99 billion in outstanding deposits, and the FCNR(B) scheme holds $26 billion.
During the COVID-19 pandemic, NRI deposits grew to $142 billion from $131 billion despite a globally softer interest rate environment, as bank deposits became a preferred savings choice amid the volatility of other asset classes. However, with the normalization of economic activity, a moderation in NRI deposits was observed in FY22 and FY23. Notably, a significant momentum has been visible since May 2023.
Economist Dippanwita Majumdar from Bank of Baroda explained, “A possible explanation could be a more calibrated approach of domestic central banks compared to global central banks, where the rhetoric of interest rates has been far more volatile.”
NRI deposits account for nearly a quarter (24%) of India’s external debt, which stood at $648 billion as of December 2023. Although most of these deposits are of one-to-three-year duration, they do pose risks from a debt servicing point of view as the bulk of these deposits tend to get rolled over.
The recent increase in NRI deposits signals a renewed faith in the Indian economy’s stability and growth prospects, reinforcing the country’s position as an attractive destination for international investors.
This surge reflects the faith overseas Indians have in the resilience of the Indian economy, which is expected to continue its world-leading growth performance this fiscal year.
There are three main deposit schemes for NRIs: the foreign currency non-resident (bank) or FCNR(B), where the foreign exchange risk is borne by the deposit-taking bank; the non-resident external rupee account or NRE(RA), where the currency risk is borne by the depositor; and the non-resident ordinary (NRO) deposit scheme.
In April, the NRE(RA) scheme attracted the most interest, with deposits totaling $583 million, while the FCNR(B) scheme saw $483 million in inflows. The NRO deposit scheme, which is intended for local use by NRIs and allows for repatriation up to a certain limit, holds an outstanding amount of $27 billion. Comparatively, the NRE(RA) has $99 billion in outstanding deposits, and the FCNR(B) scheme holds $26 billion.
During the COVID-19 pandemic, NRI deposits grew to $142 billion from $131 billion despite a globally softer interest rate environment, as bank deposits became a preferred savings choice amid the volatility of other asset classes. However, with the normalization of economic activity, a moderation in NRI deposits was observed in FY22 and FY23. Notably, a significant momentum has been visible since May 2023.
Economist Dippanwita Majumdar from Bank of Baroda explained, “A possible explanation could be a more calibrated approach of domestic central banks compared to global central banks, where the rhetoric of interest rates has been far more volatile.”
NRI deposits account for nearly a quarter (24%) of India’s external debt, which stood at $648 billion as of December 2023. Although most of these deposits are of one-to-three-year duration, they do pose risks from a debt servicing point of view as the bulk of these deposits tend to get rolled over.
The recent increase in NRI deposits signals a renewed faith in the Indian economy’s stability and growth prospects, reinforcing the country’s position as an attractive destination for international investors.
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