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Wednesday, November 9, 2016

NRI Deposits and Remittances


1. What are NRI deposits?

NRI deposits are foreign currency deposits made in an Indian bank by a non-resident Indian. These deposits can be repatriated by the NRI on maturity along with the interest earned. There are different kinds of schemes offered to NRIs like FCNR (B) or foreign currency non resident (banks) and non-resident external (rupee accounts or NRE (RA). The flows from such deposits predominantly come from the middle-east Asian countries, where working Indians typically use the money on re turn to the home coun try after retirement.

2. What are NRI remittances?

Remittances, on the other hand, are for eign currency funds sent by NRIs to their folks in India. These funds are essentially in the name of relatives, mostly immediate family. These are meant for their maintenance and upkeep and hence, can not be repatriated.Such funds come mainly from North America and Europe, besides the Gulf countries.

3. What is the difference between the two?

While NRI deposits can be re patriated on maturity or rolled over, they are essentially investments. From the balance of payments -the country's external sector balance sheet -perspective, NRI deposits are capital flows and hence, vulnerable to outflows. They have been an important source of foreign exchange at times of crisis. An additional incentive could result in additional flows, though temporarily . Like in 2013, when the rupee had touched a new low, the Reserve Bank of India (RBI) devised a special NRI deposits scheme which resulted in FCNR (B) deposits worth over $20 billion. But remittances to relatives are a current account transfer and permanent in nature and hence, there is no risk of outflows, resulting in a more valuable source of foreign exchange.But the quantum of such inflows may vary , depending on the conditions in the country where the NRI works.

4. Why is there a confusion?

Confusion between the two arises since both are sources of foreign exchange inflows from NRIs. Besides, at the time of crisis, there is a tendency to follow their overall inflows than the route of such flows.Of the $370 billion of foreign exchange reserves, over $100 billion are reckoned to be the combined contribution from the Indian diaspora through remittances and deposits.






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