UAE, USA account for majority FCNR (B) mobilised by local banks

The United Arab Emirates (UAE) and the US together account for more than half the FCNR (B) deposits mobilised by local banks, illustrating largely the concentration of Indian banking presence in the Gulf.As of end September 2024, the share of UAE was 43%, compared with 39% in March 2020, when the COVID-induced lockdown was first announced, showed an ET analysis of the latest RBI data. However, in the same period, the share of the US declined from 17% to 10.6%.

In FCNR (B) or foreign currency non-resident (banks) deposits, the foreign currency risks are borne by the banks that accept the deposits.

“Indian banks have a significantly higher presence in GCC, especially the UAE, with respect to representative offices /offshore branches than any other part of the world,” said Soumitra Sen, country-Head, consumer banking, IndusInd Bank. “This resulted in a higher share of non-resident FCNR deposits from these markets.”

Other countries with a relatively higher share of FCNR (B) are the UK at 5.5%, and Singapore – at 5%.

Explaining the reasons for a relatively lower share of the US in FCNR (B) deposits, Sen explained that interest rates and bond yields continue to be higher in the US, resulting in higher yielding options on USD for NRIs in North America. “For GCC-based NRI clients, given the strength of Indian economy/ Indian Banks, the NR / FCNR inflows grew faster and they see safety and higher returns in India vis a vis their home country,” he said.Unlike inward remittances the NRIs send for maintenance of the family back home, NRI deposits are more of savings and investment instruments that are repatriable. These investments are guided by the returns.

The central bank recently relaxed the interest cap on FCNR (B) deposits, incentivising the banks to offer more returns.

“The recent relaxation in FCNR deposit regulations by the RBI is more of a strategic move rather than a tactical move. Banks expect this move as a support for growth of FCNR deposits in the long term rather than any short term / immediate impact where markets are currently extremely volatile,” Sen said.