NRIs park more forex in India on yields, safe haven appeal
Fresh inflows under FCNR(B) which eliminates currency risk for NRIs, touched $2 billion in April-October, compared with an outflow of $841 million in the same period a year ago, showed the latest Reserve Bank of India (RBI) data published in its monthly Bulletin. Overall, fresh NRI deposits doubled to $6 billion during the April-October of 2023, from $3 billion in the same period a year ago.
«Relatively higher interest rates happen to be one of the driving factors,» said Madan Sabnavis, chief economist at Bank of Baroda.
FCNR(B) returns offered by the State Bank of India were more than 5%, compared with less than 3% returns offered by American Banks.
Even the average return on deposits in the Gulf countries, where the bulk of the NRI deposits come from, is estimated to be lower than what Indian banks offer. For the depositor, there is no foreign currency risk in such deposits as it is borne by the banks.
From a bank's perspective, the RBI had temporarily waived cash reserve requirements and statutory liquidity ratio requirements on fresh inflows under the FCNR schemes to attract foreign currency flows, and that waiver likely triggered a surge in FCNR (B) inflows.
This measure helped banks earn a little extra, which helped them divert resources to higher-yielding assets.
«What has also helped the surge in FCNR(B) deposits is that post-Covid, people are back to working outside India, causing the increase in inflows,» said Sabnavis.
Bankers, however, said the pace of inflows in the first half of the current fiscal year may not continue.
At the same time, another window of opening a deposit is also open for NRIs willing to bear the currency risk. The non-resident external (rupee account) or NRE (RA) is an attractive
