NRI Deposits Decline Despite Weakening Rupee

NRI Deposits Decline Despite Weakening Rupee

The Indian diaspora has withdrawn more funds than it has deposited in local banks since October last year, despite the sharp depreciation of the rupee. This trend likely reflects a tightening job market overseas, particularly in Gulf countries, and rising global economic uncertainty due to a potential tariff war, according to sources familiar with the matter.

Data from the Reserve Bank of India (RBI) indicates a net outflow of $1.5 billion in non-resident deposits between October 2024 and January 2025. During this period, the rupee depreciated by 3.3%. As of January’s end, the total outstanding NRI (non-resident Indian) deposits stood at $161.2 billion, down from $162.7 billion in October 2024.

Fresh inflows during this period dropped significantly to $2.4 billion, compared to $11.9 billion in the first seven months of the financial year. “It appears that the amount available for savings has reduced, possibly due to tight job markets. Lower oil prices have impacted incomes in the Gulf,” said Madan Sabnavis, Chief Economist at Bank of Baroda. “Additionally, concerns over future immigration policies in the U.S. may have contributed to the decline in deposits.”

The decrease in outstanding deposit amounts was primarily driven by a $2.4 billion outflow from non-resident external rupee accounts (NRE-RA), which typically see increased inflows when the rupee depreciates. By the end of January, NRE-RA deposits accounted for approximately 60% of total NRI deposits, amounting to $98.5 billion.

Non-resident Indians can deposit funds in any foreign currency, but investments in NRE-RA accounts require conversion into rupees at the time of deposit. A depreciating rupee usually provides a higher conversion value, making such deposits more attractive. However, investors considering repatriation of matured NRI deposits have been cautious, as a weakening rupee could diminish returns, noted a senior banker who chose to remain anonymous.

While NRE account deposits are typically utilized for domestic expenses in India, foreign currency non-resident bank (FCNR-B) accounts are preferred for repatriation post-maturity. FCNR-B account holders avoid exchange rate risks, as these accounts can be maintained in foreign currencies such as the dollar, euro, pound, or yen.

Interestingly, inflows into FCNR-B deposits increased to $32.8 billion by the end of January. Withdrawals from non-resident deposit accounts constitute a significant portion of cross-border inward remittances, which are often used to support families back home.

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