Recently, we established that in spite of the ongoing pandemic, NRI Fixed Deposits in Kerala crossed Rs. 2 Trillion mark. This is just one of the many states in coronavirus inflicted India. Scaling the figures on a national scale reveals that the total NRI Deposits touched $135.36 billion as of July 2020. The same figure was $130.58 billion for March 2020, $133.12 billion in 2019, and $124.44 billion in 2018 as per the latest data from the Reserve Bank of India (RBI).
NRI Deposits bring in more dollars during lockdown: Analysis
Comparing the NRI Deposits brought in last year between April and July ($3.05 billion) to this year ($4.6 billion) show a 50% growth in spite of the nationwide lockdown and other effects of COVID-19. The rate of growth exemplifies the trust NRIs have in the NRI Deposits in India and how they are a better option when compared to other global investment ventures for NRIs.
Now, segregating the data according to geography shows that a bulk of this influx came in from the Gulf countries, the US, and Euro zones. The numbers of NRI in these zones are very high. According to banking sources, it has been inferred that because of the lockdowns, layoffs, and salary cuts happening abroad, especially in the gulf countries coupled with the declining interest rates, this particular inflow could have shot higher up.
Breakdown of the Deposits
The NRI Deposits that we are referring to here are a combination of these forms of deposit accounts:
- Non Resident External (NRE) Deposits: The NRE account can be opened for the purpose of maintaining the income earned outside India with tax free interest (up to 7.25%) on Fixed Deposits. Both the principal amount and interest earned are completely repatriable from India.
- Non-Resident Ordinary (NRO) Deposits: The NRO account can be opened for the purpose of maintaining the income earned from India such as income from rent, pension, etc. The repatriation of the money in the account can be done up to a maximum of 1 million USD per financial year. Note: 30% tax + surcharge + education cess will be deducted on the interest earned in India at source.
- Foreign Currency Non-Resident (FCNR) Deposit: FCNR is a term deposit account in USD, GBP, EUR, JPY, AUD, CAD, SGD, HKD, and others. The ‘term’ in a term deposit account is a fixed tenure of up to 12 months, 24 months, 36 months, 48 months, or 60 months that can be opted by the NRIs at the time of account opening. The interest income is not taxable in India and both the principal amount as well as the interest are completely repatriable.
Breaking the deposits down brings us to the RBI data. As per the data, these deposit accounts brought in the following amount till July 2020.
- NRE: $96.08 billion
- NRO: $16.6 billion
- FCNR: $22.62 billion
During April-July 2020, NRIs withdrew $1.62 billion from the FCNR (B) account but deposited $5.55 billion in NRE accounts.
There is a reason that these deposits attract NRIs all over the globe. Let’s examine these deposits together for a clearer understanding.
|Factors to consider||Non Resident External (NRE) Account||Non Resident Ordinary (NRO) Account||Foreign Currency Non Resident (FCNR) Account|
|Purpose||For income earned outside India||For income earned from India (pension, rent etc.)||Foreign Currency Investment in India|
|Currency||INR||INR||USD, GBP, EUR, JPY, CAD, AUD, SGD, HKD and CHF|
|Tenure of Deposits||1 year to 10 years||7 days to 10 years||1 year to 5 years|
|Interest||Up to 7.25%*||Up to 7.25%*||Up to 3.05%*|
|Repatriation(transfer of money from Indian bank account to foreign bank account)||Both Principal (money invested initially) and Interest completely repatriable||Up to a maximum of 1 million USD per financial year||Both Principal and Interest completely repatriable|
|Tax Deductions||No tax||Tax on Interest earned (not on principal amount): 30% tax + surcharge + education cess will be deducted at the source of interest earned in India||No tax|
NRI Deposits: Interest Rates in India VS Abroad
There is a reason why NRIs prefer NRI Deposits in India over other options abroad. The interest rates on the NRE, NRO & FCNR Deposits in India is way higher (up to 7.25%) than the interest rates in the USA or Europe where banks offer a very low interest rate (0 to 1%). In the US, depositors get a maximum of 1.25 percent on one year FDs which is almost close to the inflation level of 1.3 percent in the country.
NRIs in the Gulf take advantage of the interest rate arbitrage. They do so by borrowing money in the gulf at a very low rate and deposit that money in India to get returns at a much higher rate. “It’s good to borrow there and deposit it here. Rates are half of what Indian banks charge. Borrowing costs in the Middle East are very low. UAE Central Bank cut the policy rate by 50 basis points to 1.50 percent in March. Banks offer around 1.50-1.60 per cent on FDs in Dubai, whereas you get at least three percentage points more in India,” said a banking source.
Attention: To know about the latest interest rates on NRE FD and NRI Savings accounts in India, view the table which we update as soon as the interest rates change.
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