This year witnessed a remarkable increase in fund inflows into FCNR (B) deposits intended for non-resident Indians, highlighting its appeal as a secure option for the diaspora amid global geopolitical turbulence.
According to the latest data from the Reserve Bank of India (RBI) published in its monthly Bulletin, fresh inflows under FCNR(B), eliminating currency risk for NRIs, reached $2 billion during April-October. This figure represents a substantial rise from an outflow of $841 million during the same period a year ago. Overall, total fresh NRI deposits for the current fiscal doubled to $6 billion from $3 billion recorded in the corresponding period last year.
Madan Sabnavis, chief economist at Bank of Baroda, highlighted that the relatively higher interest rates offered by FCNR(B) accounts were a significant driving force behind this surge. The State Bank of India, for instance, provided returns of over 5%, in stark contrast to the less than 3% returns offered by American Banks.
Despite deposits originating predominantly from the Gulf countries, where average returns on deposits are assumed to be lower, Indian banks continue to offer more lucrative rates. Notably, depositors are shielded from foreign currency risks, as these are borne by the banks.
From a bank's standpoint, the RBI's temporary waivers on cash reserve requirements and statutory liquidity ratio requirements for fresh inflows under the FCNR schemes were instrumental in attracting foreign currency flows. This waiver likely played a role in the substantial surge witnessed in FCNR (B) inflows.