NRIs prefer which type of account while depositing money in Indian banks?
Non-resident Indians (NRIs) are increasingly depositing money in the Indian banking system. Currently, NRI deposits account for 6.2% of total deposits in Indian banks. Over the last decade, total bank deposits climbed by 10.2%, while NRI deposits increased by 7.2%.
According to Bank of Baroda’s Economist, Dipanwita Mazumdar, interest rate differentials and India’s stable economy in the face of global concerns draw NRIs to these accounts and could be the reasons why Indian banks have become attractive to NRIs. Among NRI deposits, Foreign Currency Non-Resident (Bank) or FCNR (B) deposits have become more popular.
According to the report, NRO accounts have shown significant growth, with a 10-year compounded annual growth rate (CAGR) of 15.2%, outpacing overall bank deposits. There may be several reasons for the same ranging from ease of liquidity, interest rate differential and repatriation issues.
An Non-Resident Ordinary (NRO) Account allows you to repatriate or transfer interest earned on the principal amount deposited, with limits of up to USD 1 million per financial year after paying taxes. Interest earned on an NRO Account is taxable at 30% and deductible at source.
Share of NRO deposits has consistently risen, especially post Covid period. NRO account basically handles domestic revenue like rent, dividends, and pensions earned in India. Thus, an insulated domestic economy compared to global counterparts in terms of growth and policy dynamics could explain this rise.
During the COVID-19 pandemic, NRI deposits surged from US$ 131 billion to US$ 142 billion, despite lower global interest rates. Bank deposits were favored for savings due to less volatility compared to other investments. Globally, increased savings due
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