Reserve Bank data paints grim picture of NRI investment as deposits dwindle.
According to latest Reserve Bank Data, net inflows to various NRI deposit schemes plunged to $2.6 billion during April-November in 2021, from $ 7 billion in the same period a year before.
Non-resident external (NRE) accounts hold more than two-thirds, or 72% of NRI deposits. These, always regarded as the Indian diaspora’s safe haven deposits, which normally fetch high returns, fell 62% in the first eight months of the fiscal year. Returns dwindled as interest fell and even the risk-reward ratio took an adverse turn.
Diminishing returns are a result of the Reserve Bank signalling lower rates, making bank deposits more and more unappealing.
Speaking to the Economic Times, Ashutosh Khajuria, executive director, Federal Bank, said, “With falling returns, there has been a general slowdown in term deposits as an investment avenue.”
“Other alternatives avenues like mutual funds and stocks were more attractive for the NRI,” he said.
Domestic deposits rose 5.5% in Indian banks during April to November last year compared to 7.5% in the same time period a year earlier. It is possible that the pandemic-induced lockdown in 2020-2021 had resulted in depositors seeking refuge in safety rather than in risky ventures, and this had eventually resulted in surge in deposits. However, with some return to normalcy after the second wave of COVID-19, there has been a slowdown in deposits while other alternative instruments have also come into the picture.
During the pandemic, many NRIs were facing job losses, especially in the Middle East, resulting in lesser surplus and consequently lesser deposits. People had to fend for daily life, prioritising day-to-day maintenance rather than think of long-term investments. This was evident in figures that showed money kept in non-resident ordinary (NRO) deposits, that are meant for daily expenditure and not for investment, doubled to $2 billion during this period.
“The Indian diaspora had to deal with a lot of disruptions” said Khajuria. “Money parked in NRI deposits are essentially savings after taking care of maintenance of family”. In the short run too, things don’t look too attractive for the NRI investor as yields in more advanced markets surge and depreciation of local currency rise. NRE deposits may suffer again as they continue to receive lesser returns from interests and with currency downswing, there will not be much to take back home.