Outstanding NRI deposit rises 11% in July on strong macros

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Deposits by overseas Indians in various NRI schemes rose 11 percent on-year in July, which experts attributed to India's robust macro fundamentals.

According to the Reserve Bank of India's data, outstanding non-resident Indian deposits rose to $157,157 million in July from $141,850 million in the year-ago period.

“The main reason for the surge in NRI deposits could be India’s robust macro fundamentals,” said Aditi Gupta, an economist at Bank of Baroda.

Growth and inflation dynamics in India are much better than those of other global peers, which provides the necessary space for a relatively stable monetary policy regime.

Three schemes under which inflows have come are foreign currency non-resident (banks), or FCNR(B), non-resident external rupee account NRE(RA) and non-resident ordinary (NRO) deposit schemes.

In FCNR(B), the foreign exchange risk is borne by the deposit-accepting bank and in the NRE(RA), it is the depositor. The funds in the NRO scheme are for local use by the NRI and repatriable up to a certain limit.

Of the total outstanding NRI deposit, in July, $28,572 million were in FCNR(B), $99,981 million in NRE(RA) and $28,603 million in NRO.

Flows in these accounts stood at $5,820 million in April-July 2024 compared to $3,013 million in April-July, 2023.

Experts said the inflows are expected to rise following the rate cut in the US and expectations of delayed action from the RBI.

“The outsized rate cut by the Fed, and possibility of further rate cuts will provide further impetus to inflows into NRI deposits, as the domestic rate-cut cycle is likely to be delayed, widening the rate differential,” Gupta said.

The Federal Reserve lowered its benchmark interest rate by a half percentage point in the previous week, in an aggressive start to a policy shift aimed at bolstering the US labour market.

Projections released showed a narrow majority, 10 of 19 officials, favoured lowering rates by at least an additional half-point over their two remaining 2024 meetings.

The Federal Open Market Committee voted 11 to 1 to lower the federal funds rate to a range of 4.75 percent to 5 percent after holding it for more than a year at its highest level in two decades.

The Reserve Bank of India (RBI) is expected to maintain status in the October monetary policy review, as it wants inflation to align to the target of 4 percent on a sustainable basis.