Non-resident deposit inflows at 8-year high of $11.8 billion

In a year marked by geopolitical uncertainty, the Indian diaspora has moved a record amount of funds back home. According to analysts, they (NRIs) are making the most of the high interest rates in the country.

Fresh non-resident deposit flows into India have grown 48 per cent during the 11 months of FY24, compared with the entire FY23, according to RBI data. Total NRI deposits stood at $11.8 billion in the 11 months, growing 84 per cent from $6.4 billion in the corresponding 11-month period last year. Outstanding NRI deposits stood at $149.7 billion at the end of February 2024 ($135.5 billion).

NRI deposits include FCNR (foreign currency nonresident account), non-resident external (NRE) and nonresident ordinary (NRO).

The sharp growth in FY24 was driven by NRIs’ preference for deposits denominated in foreign currency. In FCNR deposits, NRIs can hold their funds in foreign currency, thus removing the exchange rate risk on the returns. The principal and interest on these deposits are tax-free and fully repatriable. Fresh inflows into FCNR deposits more than doubled to $5.5 billion in April 2023-February 2024, compared with $2.4 billion in FY23.

Fresh flows into NRO and NRE accounts (where currency risk is borne by the holder) also grew 5 per cent and 23 per cent year on year in the 11 months of FY24.

DATA

RATE CYCLE

“This trend in growth of NRI deposits in recent years reflects the interest rate cycle, which influences the relative attractiveness of deposits as an investment avenue,” Subha Sri Narayanan, Director, CRISIL Ratings, said.

“Till the end of FY22, interest rates both in India and globally were low, reducing the attractiveness of deposits in general for NRIs.

With rates peaking at the beginning of FY24, deposits are in favour again, and we saw healthy growth in overall NRI deposits in FY24,” she added.

Total NRI deposits across all three categories declined 14 per cent and 56 per cent in FY21 and FY22 respectively, as NRIs found it less attractive to invest in India because of the risk of a depreciating rupee. Then, in July 2022, with a view to lure more foreign currency deposits, the RBI removed interest caps on NRI deposits for a period until October 2022.

Banks were also exempted from the mandatory Cash Reserve Ratio and Statutory Liquidity Ratio for incremental NRI deposits until November 2022. This led to a more than doubling of fresh NRI deposit flows from FY22 to FY23.

Analysts note that expatriates are increasingly focusing on dollar-denominated products to capitalise on higher interest rates in India. “Alternative avenues such as investing in stock markets is also picking up,” an analyst added.

AT THE TOP

Globally, India has the highest non-resident deposit balances among developing nations with a large diaspora. According to a recent World Bank report on remittances, India’s non-resident deposits balance stood at $143 billion as of September 2023, compared with $8 billion in Sri Lanka, $7 billion in Mexico, and $4 billion in Pakistan. The report also anticipates a strong foreign remittance outlook for India in 2024 from the US, the UK, Singapore and the UAE, barring any new geopolitical shocks.