Why NRIs Are Choosing Foreign Currency Deposits More Than Ever

The Growing Appeal of Foreign Currency Deposits

A weak rupee has made foreign currency deposits more attractive for Non-Resident Indians (NRIs). In the fiscal year 2024-25, the net inflow under foreign currency non-resident (B) accounts increased by 11%. It went up to $7.1 billion from $6.4 billion in the previous year. This is a big recovery. NRIs had withdrawn their deposits during 2020-21 and 2021-22. This had turned the category negative.

Looking Back: Historical Trends

• During the pandemic years of 2020-21 and 2021-22, FCNR (B) saw a net outflow of $3.8 billion and $3.6 billion respectively.
• Net inflow revived in 2022-23, reaching $2.4 billion.

Record-Breaking Inflows in FY25

In the fiscal year 2024-25, the net inflow under non-resident deposits was $16.2 billion. This includes NRE, NRO, and FCNR (B) accounts. It is the highest in the past 11 years. FCNR (B) accounted for 44% of this inflow. The Reserve Bank of India’s decision to raise interest rate caps on FCNR (B) has also fueled this growth. Banks can now offer better returns.

Why FCNR(B) Accounts Are Beneficial

• FCNR(B) accounts are fixed deposit accounts. They are for NRIs and persons of Indian origin (PIOs).
• These accounts hold money in international currencies. These include the dollar, British pound, euro, and more.
• They protect depositors from exchange rate fluctuations.
• Term deposits range from 1 year to 5 years.
• Interest earned on FCNR(B) accounts is tax-free in India.

Growth in NRI Accounts

Private sector banks have seen steady growth in NRE, NRO, and FCNR(B) accounts. For example, South Indian Bank has seen growth rates of 3%, 5%, and 6% respectively over the last three financial years. Biji S S, Senior General Manager at South Indian Bank, noted that the strength and stability of foreign currencies like the US dollar have encouraged NRIs to invest in these accounts. The depreciation of the rupee has also made foreign currency deposits more appealing. They act as a hedge against exchange rate risk.

What’s Next: Future Outlook

Looking ahead to the fiscal year 2025-26, inflows are expected to rise further. Tanvi Kanchan, Head of NRI Business & Strategy at Anand Rathi Shares and Stock Brokers, stated, “Interest rates in India are still relatively high. This is likely to attract more investments.”