NRI deposits highest since FY14; May help stabilizing exchange rate and liquidity scenario

Impact: Positive (Exchange Rate); Positive (Liquidity)

Brief: As on Q1 FY19, the non-resident deposits stood at $3.5 billion, three times higher ($1.2 billion) than same time, the previous year. Overall, as on FY19 YTD, the deposits have reached a three-year high of $5.7 billion, as compared to just $0.5 billion, same time last year. We reckon that these deposits will breach the $20 billion barrier by the end of this financial year given strong growth in major source nations such as those in the Middle East.

As on Q1 FY19, the non-resident deposits stood at $3.5 billion, three times higher ($1.2 billion) than same time, the previous year. Overall, as on FY19 YTD, the deposits have reached a three-year high of $5.7 billion, as compared to just $0.5 billion, same time last year. The contribution of these special accounts in India's overall Current Account Deficit (CAD) were therefore pegged at 34.4% as compared to 3.6% in FY18 YTD.

Timing for such deposits is everything and we believe that the rising oil prices are shoring up these special accounts. This is because, at 65%, oil price and NRI deposits are highly correlated and therefore, whenever oil prices go up, a strong push factor is created toward higher return avenues. Offering nearly 4.10% return for a duration that ranges between 24 to 60 months, Foreign Currency Non-Resident (Bank) deposits (FCNR (B)) are especially very popular among non-resident Indians looking to park their money in their home country. The diaspora from OPEC countries are a special mention here as their disposable income increases whenever the commodity price rises – ultimately available for such deposits through remittances.

RBI offers this service through various banks and associated dealers in order to offset the pressures created in the domestic market by FPI outflows. While NRI deposits comprises of three categories namely the FCNR (B), Non-Resident Ordinary Deposits (NRO), Non Resident External Rupee (NRER), the current circumstances make the first route most attractive from the RBI's perspective. This is because apart from FCNR (B) route, the other two are Rupee deposits, which in turn do not help the exchange rate volatility in a comprehensive manner. Curbing the falling value of Indian rupee against USD and liquidity deficit in the domestic banking system is thus an important function of these deposits. We reckon that these deposits will breach the $20 billion barrier by the end of this financial year given strong growth in major source nations such as those in the Middle East.

Capital Inflows (in $ Million)

  Capital Account * NRI Share in CAD
FY12 80,612 11,921 14.8%
FY13 85,155 14,844 17.4%
FY14 33,240 38,406 115.5%
FY15 27,810 14,057 50.5%
FY16 23,161 16,052 69.3%
FY17 14,830 -12,367 -83.4%
FY18 47,759 9,676 20.3%
FY18 YTD 15,516 556 3.6%
FY19 YTD 16,561 5,701 34.4%

Source: RBI, Acuité Research


Comparative Monthly Trend in NRI Inflows

Source: RBI, Acuité Research

Our exciting journey started in 2005 with rating of bank borrowers most of whom were small and medium enterprises. At that time, credit rating was a concept known only to large issuers of capital market instruments. Since then, like a caterpillar transforms itself into a beautiful butterfly, we transformed to rate bonds, bank facilities of large corporates and issuers across industries. Along came many achievements - SEBI Registration in 2011, RBI accreditation in 2012, 50,000 ratings in 2018, 5,000 Bond and Bank Loan Ratings in 2017, launch of India's first Android and iPhone app to disseminate rating, tamper-proof QR-code-enabled rating rationales, and SMERA Terminal to name a few.

Now is the time to re-emphasize our increasing footprint across all segments of ratings through the launch of our new name - 'Acuité'.

The name has changed. The spirit of upholding highest standards of analytical rigour, continuous improvement, excellence in our processes and quest for innovation remains the same. We would like to re-emphasize that we will continue to work hard to provide independent, unbiased and timely opinion of highest standard.

Acuité means 'sharpness and clarity of thought and vision'. Let our research and ratings help you take decisions with confidence.


Sankar Chakraborti
CEO