In spite of the economic slowdown caused by the lockdown following the covid-19 outbreak, NRIs deposited $2.53bn (£1.9bn, €2.14bn) in Indian banks during June 2020 alone.
This is the highest single month flow in 28 months.
In the six months to the end of June 2020, NRI deposits in Indian banks hit $132.24bn, up from $130.58bn in the corresponding period in 2019, according to the latest statistics released by the Reserve Bank of India.
Almost $2bn in rupee deposits was paid in during April, as they expected higher returns even as interest rates dropped to near zero in all developed countries.
Inflows rose marginally to $2.04bn in May 2020, before jumping to $2.53bn a month later.
Indian opportunity
“It is an indication of the optimism the NRIs have on the outlook of the Indian economy,” said Sajith Kumar PK, chief executive and managing director, IBMC Financial Professionals Group, Dubai.
“However, as the Covid cases keep rising at an alarming rate, which may force the government to impose another spate of lockdowns, the positive outlook may reverse.
“The silver lining is that some sectors will outperform others, boosting the capital markets that will attract foreign institutional investors.”
But some of the money sent to India could have been retained in the UAE and channeled into attractive investment avenues, say investment advisers.
“This shows that Indian investors had disposable incomes in spite of the economic slowdown, income reduction and job losses,” said Manoj Vallikudiyil, partner Manjul Associates, securities and investment consultants.
“It seems investment advisers in the UAE failed to channelise this surplus income to the UAE market or other developed markets.”
Options for parking money
NRIs have a couple of options when it comes to parking their money in Indian banks:
- Foreign currency non-resident or FCNR(B) deposits, where the currency risk is borne by the bank which accepts the deposits; or,
- Non-resident rupee of NRE (RA), non-resident external (rupee) account, where forex risk is borne by the depositor.
Money paid into these accounts can be repatriated back.
In addition, NRIs have another option:
- Non-resident ordinary (NRO) accounts, which is meant for their use while in India.
Surprisingly, NRIs withdrew $1.78bn from their FCNR accounts in the April-June 2020 period.
Further, a substantial amount of inflows in the NRE accounts was rolled over from FCNR deposits. This was when the rupee value dropped to INR76 against the dollar amid expectation of an unprecedented recession.
The trend seen so far is that non-resident rupee deposits tend to rise when the rupee weakens.
The rupee was at a low of INR 76 against the dollar in April 2020 and among the worst performing emerging markets currencies.
As the economy has shown some signs of improvement since May, the rupee has strengthened and now reached INR74.32 against the dollar, in line with upbeat domestic equities and sustained foreign fund inflows.
As the inflows improved, India’s foreign exchange reserves crossed the half trillion dollar mark to a record $538.19bn, as of 7 August 2020.
Opportunities in UAE
“The increase in NRI fund flow to India is because of a lack of investment avenues in the host country or other developed markets, such as America and the European markets, where the outlook is grim with interest rates are likely to drop further and financial markets remain in the grip of bears,” said Kumar.
“Investment advisers in the UAE should have lured back NRI investors from the herd-mentality of parking their money in Indian banks, especially fixed deposits though the returns are record low,” said Victor Menezes, director, Growealth Syndicate, Dubai-based consultancy.
“There are still more good opportunities and attractive avenues here.”
