New Delhi [India], June 20 : The Reserve Bank of India's latest measures to attract foreign currency deposits could help revive NRI inflows after growth stalled in FY26, while a parallel shift is underway within the deposit base as NRO accounts emerge as the fastest-growing segment, according to a Bank of Baroda research report.
The report, titled, "How NRI deposits and its components have moved over the years," comes after the RBI announced that it will bear the full hedging cost for banks raising fresh FCNR(B) deposits until September 30, 2026, in a bid to attract foreign capital.
According to the report, total NRI deposits have largely flatlined in FY26 after rising steadily over the past decade, reaching USD 166 billion from USD 165 billion a year earlier.
The report noted that NRI deposits have also grown at a slower pace than overall bank deposits. Over the last five years, aggregate deposits expanded at 7.8 per cent annually in dollar terms, compared with just 3.1 per cent growth in NRI deposits.
Against this backdrop, Bank of Baroda examined whether the RBI's latest FCNR(B) initiative could replicate the success of the central bank's 2013 scheme, which brought a sharp surge in foreign currency inflows when the rupee was under pressure.
"The current measure to attract FCNR (B) deposits is likely to support growth in overall NRI deposits as seen between FY13-16 period," the report said.
The report recalled that the RBI's swap window facility introduced in 2013 triggered a sharp rise in FCNR(B) deposits, helping total NRI deposits increase from USD 71 billion in FY13 to USD 127 billion in FY16.
"The pickup in overall NRI deposits from US$ 71bn in FY13 to US$ 127bn in FY16, is attributable increase in FCNR (B) deposits from US$ 15bn to US$ 45bn in FY16," the report noted.
While FCNR(B) deposits remain central to the RBI's current strategy, the report highlighted a significant structural trend within NRI deposits - the growing importance of NRO accounts.
"Within NRI deposits, we can see in the past 5Y as well as the 10Y period, NRO deposits is gaining popularity albeit in amount it is smaller compared to NR (E) RA," the report said.
According to the report, NRO deposits posted a compound annual growth rate (CAGR) of 12.1 per cent over the last five years and 12.6 per cent over the last ten years, making them the fastest-growing category among NRI deposit products.
Their share in total NRI deposits has also risen sharply, from 11.7 per cent in FY19 to 20.1 per cent in FY26.
"Shares of NRO deposits have consistently risen. From 11.7% in FY19, it has risen to 20.1% in FY26. Especially, post Covid period, it witnessed quite a momentum," the report said.
Bank of Baroda attributed the trend to rising domestic income earned by NRIs through rent, dividends, pensions and sale proceeds from assets in India.
"One explanation of increasing share of NRO account can be higher domestic income earned through rent, dividend, pensions or sale proceeds which are routed through this account," the report said.
The report added that growing balances in NRO accounts indicate increasing confidence among overseas Indians in India's growth prospects.
"The higher outstanding balance in the NRO account also speaks of increasing confidence of NRIs on higher growth potential of Indian economy compared to global counterparts," it said.
Looking ahead, the report expects the RBI's latest FCNR(B) measures to support stronger NRI deposit growth.
"Based on the current initiative by RBI, we can expect a growth rate of 8-10% in NRI deposits in the next five years or so," it added.