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Attracted by higher returns on deposits in India, overseas Indians poured 14 per cent more into non-resident Indian (NRI) deposits in the April-August 2015 period as compared to the corresponding year-ago period.
NRIs placed deposits aggregating $8.226 billion in the first five months of the current financial year as against $7.217 billion in the year-ago period, according to RBI data.
Within NRI deposits, the year-on-year flows into Non-Resident (External) Account (NRE Account) were 19 per cent higher at $6.50 billion, against $5.453 billion in the corresponding year-ago period. NRE account is a rupee deposit scheme.
However, inflows into the Foreign Currency (Non-Resident) or FCNR (B) account were 16 per cent lower at $1.333 billion, against $1.586 billion a year agoperiod. As the name suggests, FCNR (B) account is maintained in foreign currency.
Bankers sat that lower flows into FCNR (B) is possibly indicative of depositors’ perception that the rupee will not depreciate much. Suppose an NRI today places a $10,000 (at the current exchange rate of $1 = ₹65) FCNR (B) deposit for one year with a bank at the current interest rate of 1.25 per cent. Assuming that the rupee continues to hover around ₹65 to the dollar level one year down the line, the return that the NRI will get at maturity will be $10,125 (or ₹6,58,125).
Now, suppose that the NRI exercises the option to place an NRE deposit for the same amount (at the current exchange rate), then the return equation could change. At the one-year NRE deposit rate of 7.50 per cent, the depositor would get a higher return of ₹6,98,750 at maturity.
A senior public sector banker said exchange rate movements play a big role in depositors’ decision on where they park their funds — in NRE accounts or FCNR (B) accounts.
In the first five months, flows into non-resident ordinary rupee account were higher at $393 million ($177 million in the corresponding year-ago period). Flows into NRO deposits arise either due to NRIs receiving rent on property in India or dividend on shares held.
As at August-end, NRI deposits with banks in the country stood at $119.335 billion compared with $115.163 billion as at March-end 2015.
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