Rupee fall makes diaspora's foreign currency deposits attractive
It comes after NRIs pulled out their deposits earlier, turning the category (FCNR(B)) negative during 2020–21 and 2021–22.
Data available in RBI's annual reports shows that FCNR (B) recorded a net outflow of -$3.8 billion and -$3.6 billion during two Covid years of 2020–21 and 2021–22, respectively. However, its net inflow revived during 2022-23 and stood at $2.4 billion.
In FY25, the net inflow under non-resident deposits basket comprising Non-Resident External (Rupee) Account (NRE), Non-Resident Ordinary (NRO) Account and FCNR (B) was at $16.2 billion, the highest in the past 11 years.
Of this, FCNR (B) share was 44%. RBI raising the interest rate caps on FCNR (B), allowing banks more freedom to offer better returns also fuelled its growth.
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FCNR(B) account is a type of fixed deposit account designed specifically for NRIs and Persons of Indian Origin (PIOs). Its unique feature is that money is held in international currencies such as US Dollar (USD), British Pound (GBP), Euro (EUR), Australian Dollar (AUD), Canadian Dollar (CAD), Swiss Franc (CHF), and Japanese Yen (JPY), which protects depositors from exchange rate fluctuations.
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While the duration of term deposits ranges from 1 year to 5 years, interest earned on FCNR(B) accounts is tax-free in India.
Private sector South Indian Bank, which has a sizeable NRI customers base particularly in the Gulf countries, says it has experienced a steady growth in NRE, NRO, and FCNR(B) accounts over the last three financial years at 3%, 5% and 6%, in FY23, FY24, and FY25 respectively. "The relative strength and stability of foreign currencies such as the US dollar further incentivized NRIs to invest in these accounts.
Additionally, the depreciation of the Indian Rupee enhanced the appeal of foreign currency deposits as a hedge against exchange rate risk," said Biji S S, senior general manager and head of branch banking, South Indian Bank.
Tanvi Kanchan, head - NRI business & strategy, Anand Rathi Shares and Stock Brokers said, "Looking ahead to FY26, inflows are expected to rise further. This is because interest rates in India are still relatively high, and if rates fall in the US or other developed markets, India will become even more attractive for NRIs seeking better returns," Kanchan added.
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