Strong Rupee, Falling Interest Rates Lead To Plunge In NRI Deposits In India

Deposits by non-resident Indians (NRIs) in Indian banks have plunged by nearly 30 percent in the first 5 months of the current fiscal year (FY20), due to the duel effect of relative strengthening of rupee and sliding interest rates on deposits.

Fresh NRI bank deposits dropped to $4.04 billion during April-August 2019, against $5.70 billion in the corresponding period of last year, according to the latest data put out by Reserve Bank of India (RBI). 

According to banking sources, NRI remittances during this period were also impacted due to the relative strengthening of rupee. Detailed RBI data on remittances, however, was not available.

Exchange value of Indian currency, rupee has been in the range of 69 - 71.60 against US dollar during April-August this year, as against a high of 74 in October 2018.

Interest rates on NRI rupee deposits have also seen a drop of 50 to 70 basis points to 6.4-6.6 percent currently in the last 12-month period.

Gulf region accounts for a major part of both NRI remittances and bank deposits in India.

Kerala growth

Significantly, Kerala, which is home to a large chunk of expat Indians, has seen a growth in both NRI remittances and bank deposits in the first 5 months of FY 20.

The need for monthly transfers by Gulf-based NRIs for relatives’ maintenance, irrespective of the rupee exchange value, is cited as the reason for this.

Kerala-headquartered Federal Bank, a leading Indian bank dealing with NRI financial dealings, has seen a healthy 8 percent increase in NRI remittances in the first 6 months of FY20.

“As for our bank, the NRI remittances business has grown by 7 to 8 percent in the first 6 months (April-September 2019). The share of NRI deposits in our overall deposits has also seen a growth of about 1.5 percent during this period,” Radhakrishnan K, Senior Vice President and Country Head – Retail Assets, Federal Bank, told Arabian Business.

“Large majority of Keralites working in the Gulf countries have to keep sending money home for upkeep of their family members on a monthly basis irrespective of the rupee value (against dollar). This could be the reason in the growth of NRI remittances to the region,” he added.

​Radhakrishnan, however, said NRI remittances see fluctuations depending on the rupee exchange value against US dollar.

“We had seen a big jump in NRI remittances, especially from the Middle East region, during October last year when rupee has crossed 74 against dollar,” he said.

Remittances

Federal Bank’s NRI remittances business totalled $12.5 billion in FY19. Money transfers by expat Keralites working in Gulf countries account for about 60 percent of Federal Bank’s NRI remittances portfolio.

Banking sources said of late NRIs, including those from the Middle East region, have started channelling part of their remittances to India's stock market which has been on a rise in the recent months.

“This way, NRIs hope to make up for whatever notional loss they incur due to appreciation in rupee,” an advisor on PMS investments by NRIs with a leading asset management company, has told Arabian Business.

The Federal Bank executive said they are also ‘advising’ their NRI customers – mostly their Gulf-based customers – to invest partly in stocks for better returns in the current buoyant movement in the stock market.