Non-resident Indians (NRIs) brought to India a higher amount of $4.6 billion to India between April and July this year when most of the countries faced stringent lockdowns across the world. This is 50 per cent more than what NRIs had brought to India during the same period of last year, i.e. $3.05 billion.
With this inflow, total NRI deposits touched $135.36 billion as of July 2020, up from $130.58 billion in March 2020, $133.12 billion in 2019 and $124.44 billion in 2018, according to the latest Reserve Bank of India (RBI) data.
A bulk of this amount has come from Gulf countries, the US and Euro zone where NRIs are in large numbers. After lockdown was imposed in April, layoffs and salary cuts happened in many Gulf countries and interest rates declined further in most countries which could have an effect on higher inflows, said a banking source.
As much as $96.08 billion of NRI deposits is in NR(E) RA, or non-resident external rupee account, while FCNR (B) (foreign currency non-resident bank account) attracted $22.62 billion till July this year, RBI data shows. Funds in both the accounts can be repatriated. During April-July 2020, NRIs withdrew $1.62 billion from the FCNR (B) account but deposited $5.55 billion in NR(E) RA accounts.
A major factor that attracts NRIs to NR(E) RA deposits is that savings, current and term deposits are allowed through this facility while FCNR allows only term deposits.
Besides, NRIs have put $16.6 billion in NRO (non-resident ordinary) accounts as of July 2020. However, repatriation is not allowed in NRO accounts unlike FCNR (B) and NR(E) RA accounts.
The three NRI deposit schemes in India offer high interest rates as compared to rates in the US or Europe where banks offer virtually nil or close to 1 per cent rates. State Bank of India offers 4.90 per cent for NR(E) RA accounts for a tenure of one to two years. For deposits between 3-5 years, it offers 5.30 per cent.
NRIs are also making money by borrowing in Gulf countries and depositing it in India to take advantage of the interest rate arbitrage. “It’s good to borrow there and deposit it here. Rates are half of what Indian banks charge. Borrowing cost in Middle East is very low … UAE Central Bank cut the policy rate by 50 basis points to 1.50 per cent in March. Banks offer around 1.50-1.60 per cent on FDs in Dubai, whereas you get at least three percentage points more in India,” said a banking source.
The situation is not different in the US where depositors get a maximum of 1.25 per cent on one year FDs which is almost close to the inflation level of 1.3 per cent in the country.
However, bankers said NRI depositors need to be cautious about the rupee depreciation as their high returns on FDs (fixed deposits) or debt paper in India will evaporate when the rupee declines sharply against the dollar.
Resident Indians have been getting a negative real return (interest rate minus inflation rate) on their FDs due to the rise in inflation level.
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