Slowdown in Gulf, a soaring dollar take a toll on non-resident deposits

MUMBAI: Deposits from non-resident Indians, an important source of US dollar funding for the Indian economy , is collapsing. It fell 60% in the April-July period to just about $2.8 billion as the layoffs in the Gulf region mounts amid sluggish oil prices. The strength of dollar globally also compelled overseas Indians to save in dollars instead of putting in as deposits in Indian banks.

This slowing inflows could also test the new Reserve Bank of India Governor Urjit Patel who faces a $26-billion outflows due to the redemption of FCNR-B (foreign currency non-resident bank) deposits raised in 2013 during the currency crisis. “As NRI deposits slowed down, there will be pressure on RBI which may have to eventually dip into forex reserves to pay for the dollars demanded by banks for redemption of the deposits,“ CARE Ratings chief economist Madan Sabnavis said. India has $371 billion in forex reserves.

NRI deposits flow depends on two factors: interest rate differentials between Indian and global economies where US Fed rates act as a proxy , and exchange rate stability .Indians working in the Gulf put their earnings in NRE(RA) scheme and they get more value during cur rency conversion when rupee becomes weak.

But, this year, their earnings dipped, leading to a fall in the flow of money they send to Indian banks as the United Arab Emirates (UAE), Saudi Arabia, Qatar and other countries in the Gulf region cut spending on construction projects and sent the Indian workers back home to control budget deficits caused by falling oil prices. Net NRI deposit inflows in April to July was at $2.765 billion compared with $7.028 billion inflows in the same period a year ago.

Flows into NRE(RA) deposits fell to $2.891 billion in the same period from $5.328 billion while there was net outflow of $367 million from FCNR-B deposits compared with $1.407 billion inflows. Deposits in NRO scheme fell marginally to $241 million from $293 million.