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.