India’s NRI Deposits See Sequential Decline For Second Consecutive Month

India’s overall NRI deposit base contracted sequentially for the second straight month in January, possibly due to volatility in the exchange rate of the rupee. A chunk of the fall came from the fourth consecutive fall in deposit under the Non-Resident (External) Rupee Account to $98.49 billion by the end of January 2025.

The total NRI deposit was at $161.21 billion at the end of January, compared with $161.80 billion a month ago. To be sure the deposit is higher than the year ago figure of $147.73 billion.

NR(E)RA deposits form the largest share among various NRI deposit categories, which also include Foreign Currency Non-Resident accounts and Non-Resident Ordinary accounts. NR(E)RA deposits, which are rupee-denominated, expose investors to currency risk, as fluctuations in the Indian rupee impact returns when converted back into foreign currency.

Between October 2024 and January 2025, the Indian rupee depreciated by 3.3%, making NR(E)RA deposits less attractive for foreign investors. The downward trend in these deposits is often linked to expectations of further rupee weakness, as depositors fear that currency depreciation could reduce dollar-equivalent returns upon maturity. These deposits typically have a tenure ranging from one to five years, meaning any sustained depreciation of the rupee could lower repatriation value.

Historically, inflows into NR(E)RA deposits have been sensitive to currency movements, with stronger rupee stability boosting foreign investor confidence. The recent drop suggests that NRIs may be shifting their funds to other asset classes or higher-yielding foreign investments to mitigate currency risks.

NRI deposits saw inflows of $9.74 billion between April and September, while October to January witnessed a decline of $416.69 million.

While a decline in NRI deposits does not immediately impact India’s foreign exchange reserves significantly, the RBI does like to attract NRI deposit when it faces pressure on balance of payments. In December, RBI had decided to increase the interest rate cap on FCNR (B) deposits.

Policymakers may now need to consider measures to enhance the attractiveness of NR(E)RA deposits, such as offering competitive interest rates or ensuring greater rupee stability to regain investor confidence.