NRIs of the world, keep on depositing

Non-resident deposits are surging because the confluence of factors that define the risk-reward trade-off are broadly positive. The pandemic had globally reset households' savings patterns in favour of less-risky bank deposits. This worked to the advantage of the money the Indian diaspora parks in deposits back home. The NRI population overall had relatively even incomes during the Covid disruptions, which kept remittances strong, another positive influence on non-resident deposits. Emerging from the global economic crisis, interest and exchange rates moved steadily to make NRI deposits more rewarding. This was aided by temporary easing of interest rate flexibility, and risk provision allowed by RBI on such deposits. Finally, India has not been a contributor to global uncertainty in economic or political terms, which improves the risk profile of deposits held by NRIs in the country.

These favourable influences are expected to continue, making for secular growth in India's non-resident deposits. On the whole, NRI deposits are more stable than capital flows into equity. The key economic determinant encouraging this stable inflow - India's interest rate differential with advanced economies - is on course to return to historic levels. The rupee's depreciation, too, has become more controlled with forex reserves resuming their climb.

NRI deposits have, by and large, kept pace with India's economic growth, but have trailed domestic deposit mobilisation. Going forward, domestic deposits are expected to outgrow NRI deposits. This limits vulnerability to episodic reversals of flow triggered by domestic events. India has made a smaller growth-inflation trade-off than most advanced economies, which lowers its chances of adding to volatility in financial flows. As inflation trends towards target, the economy will gain economic momentum. This should make NRI deposits more attractive to the diaspora. The diaspora numbers are themselves posting healthy growth, making both remittances and NRI deposits robust and stable. Global trends in immigration will widen the funnel of NRI deposits.