Non-resident Indian deposits fall to just $349 million in Q1

The flow of money into non-resident Indian NRI deposits fell to just $349 million in Q 1 FY 23 from $2.52 billion in Q 1 FY 22.

Outstanding deposits fell to $135.9bn at the end of June 2022 from $141.5bn a year ago. According to Reserve Bank of India RBI data, deposits fell from $139.02 billion in March 2022 to 137.08 billion in May 2022.

The situation was exactly the opposite a year ago when deposits swelled by over $8.4 billion from $132.7 billion in June 2020 to $141.16 billion in June 2021.

Foreign currency depsit FCNR-B accounts opened for depositing income earned overseas saw maximum contraction. They dropped from $19.69 billion in June 2021 to $15.68 billion in June 2022. The deposits of FCNR-B were $16.91 billion in March 2022 and $15.91 billion in May 2022.

The second category-Non Resident External Account NRE, where NRIs can transfer foreign earnings, saw a decline in outstanding deposits from $102.92 billion in June 2021 to $98.98 billion a year later in June 2022. NRE deposits were $100.8 billion in March 2022 and $99.92 billion in May 2022.

The trend was opposite for Non-Resident Ordinary NRO Accounts, where outstanding deposits went from $18.91 billion in June 2021 to $21.31 billion in June 2022. They were stable in March, with $21.3 billion and $21.25 billion in May 2022.

On July 7, 2022, the RBI took several steps to increase forex inflows because of the sharp contraction in foreign exchange reserves. RBI has temporarily allowed the ability to raise fresh FCNR B and NRE deposits without regard to existing restrictions on interest rates. The interest rate on FCNR-B deposits is capped at the Overnight Alternative Reference Rate ARR for a given currency swap plus 250 basis points for a year to less than three-year maturity before the relaxation. The ceiling for FCNR-B deposits of up to 5 years is the overnight ARR plus 350 basis points.

Interest rates for NRE deposits can't be higher than those on comparable domestic rupee term deposits. Many, including State Bank of India and ICICI Bank, have tweaked interest rates on FCNR-B deposits and NRE as a result of their changes in interest rates, which would be seen over the coming weeks.