The dip in crude oil prices and the possibility of the US Federal Reserve hiking rates in December have led to the fund flow into non-resident Indian (NRI) deposit accounts dropping sharply in 2016-17.

In the first five months of the current financial year, the inflow into these deposits aggregated $3.755 billion, a fall of nearly 55 per cent year-on-year, according to data from the Reserve Bank of India.

In its latest annual report, the central bank observed that the slump in global crude oil prices from the second half of 2014-15 has impacted the momentum in remittances from West Asia, which accounts for more than half of India’s total remittances. Further, subdued income conditions in other advanced economies in the post-crisis period may also have accentuated the slowdown.

The chief dealer at a public sector bank also attributed the slowdown in NRI deposits to overseas Indians preferring to chase higher returns by investing in debt in the US.

“If the Fed rate hike materialises in December but the accompanying commentary is dovish, then (NRI deposit) flows could pick up. If the commentary is hawkish, the flows may come down,” he said.

“Once we reach a stage where we see that the interest rate cycle has bottomed out in India, NRIs will step up deployment in bank deposits. Currently, the cost of hedging is 5.50-5.75 per cent. If your net return is not positive or considerably positive, why should money come in?” said the dealer.

The RBI’s latest financial stability report cautions that the downside of prolonged low oil prices needs to be understood in terms of a likely reduction in private transfers and remittances.

As of August-end, the banking system had NRI deposits — Foreign Currency Non Resident (Bank) Accounts, Non-Resident (External) Rupee Accounts and Non Resident Ordinary Accounts — aggregating $130.079 billion ($119.394 billion as of August 2015).

The three-year Foreign Currency Non Resident (Bank) deposits mopped up by commercial banks under the special swap scheme in 2013 started to mature from September 2016. Bankers say a portion of the $26 billion raised under the scheme is unlikely to be renewed as the interest rate differential between the US and India has narrowed after the RBI cut its policy rate by 25 basis points last week.