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Chart of the Day: NRI deposits have been a weak link in flows recently

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Flows from NRI deposits have declined in the past year due to a combination of low interest rates, a hit to income from the pandemic and the rupee's relative strength against currencies other than the dollar.

Chart of the Day: NRI deposits have been a weak link in flows recently
Deposits by non-resident Indians, a long standing and steady source of dollars for the country, was hit hard due to the pandemic. Such deposits witnessed a drawn down in the past year with the outstanding amount slipping marginally. The pandemic had hit incomes of Indians residing abroad and the Indian rupee’s relative strength against other currencies meant the incentive to keep deposits was low. Low interest rates is yet another reason for a fall in NRI deposit inflows. Deposit rates had dropped sharply last year and the Reserve Bank of India’s rules mandate that banks cannot differentiate in the interest rate offered to NRI and resident deposits. This has now temporarily been discarded as the RBI has allowed banks to offer higher interest rates on such deposits to attract funds. Further, such deposits won’t be included in calculation of statutory liquidity ratio and cash reserve ratio of banks. These measures are expected to boost inflows from NRI deposits. FY23 could see NRI deposit flows inching back towards the historic steady state. A weaker rupee could also increase the appeal for non-residents to invest in such deposits this year.
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