Net inflows could reach highest level since FY14; major chunk from West Asia

New Delhi: Non-resident Indian (NRI) deposits jumped to $5.7 billion in the first five months of this fiscal compared to $0.5 billion in the same period last year. The rise is attributed to the sliding rupee, which makes deposits in the currency attractive for NRIs, and to higher oil prices which have prompted inflows from NRIs in the Middle-east to increase.

“Given that the major proportion of NRI deposits originate from the Middle East and the oil prices have been on an upswing in addition to the weakness in rupee, we believe that the net inflow of these deposits may touch $20 billion in the current year,” Acuité Ratings and Research said.

According to data published by RBI, during the April-August period of 2018-19, NRI deposit inflow was $5.7 billion. Non-Resident (External) Rupee Account was the main contributor at $4.1 billion compared to $1.7 billion during the same period of the previous year. These deposits are freely repatriable and tax free. “It is but natural for NRE deposits to accelerate when the currency depreciates as the value of deposits in rupee terms grows significantly during such episodes,” said Rupa Rege Nitsure, chief economist, L&T Finance Holdings. Rupee has depreciated about 12% against the dollar this financial year.

“Also, when currency depreciates, interest rates in the country develop an upside bias. So, prospective interest earnings also go up. This too incentivises NRIs to send more money during the episodes of currency depreciation,” Ms. Nitsure said.

The other components of NRI deposits are FCNR(B), which saw inflows of $597 million during April-August (compared to outflow of $799 million in the year ago period) and NRO, which attracted inflow of $986 million (versus outflow of $327 million).

The UAE is the top source of inward remittances into India, with Kerala receiving the maximum funds sent from abroad, according to the RBI’s survey of inward remittances for 2016-17.

“Given that the major proportion of NRI deposits originate from the Middle East and the oil prices have been on an upswing in addition to the weakness in rupee, we believe that the net inflow of these deposits may touch $20 billion in the current year,” Acuité Ratings and Research said.

According to Acuité, the net inflow (net of redemption) in FY18 was $9.68 billion. The rise in such deposits is expected to partly help bridge the current account deficit, which is expected to exceed $70 billion in FY19.

“The government and RBI have taken measures in the past to attract a higher quantum of NRI deposits. However, any sharp upsurge in such deposits over a short period may not be necessarily favourable over the longer term as these deposits are repatriable and can therefore lead to sudden currency outflows in future periods,” Acuité Ratings said.