International Journal of Academic Research and Development

International Journal of Academic Research and Development

ISSN: 2455-4197
Impact Factor: RJIF 5.22
www.academicsjournal.com
Volume 2; Issue 6; November 2017; Page No. 448-451

The research paper on non-resident deposits in India: A conceptual study

1
Sonia Sorte, 2 Dr. HG Abhyankar
1
Assistant Professor, Bharati Vidyapeeth Deemed University, Pune, Institute of Management and Entrepreneurship Development,
Pune, Maharashtra, India
2
Professor, Gokhale Institute of Politics and Economics-Pune, Maharashtra, India

Abstract
The significance of Non-Resident Deposits lies in the fact that these deposits are ‘confirmed’ and ‘reliable’ source of foreign
exchange as they are unconditional in nature. In fact one of the major components of Non-Resident Deposits is in the form of
FCNR Deposit Accounts (Foreign Currency Non-Resident Account) which is immune to currency fluctuations.
Foreign Currency Non Resident Deposit Meaning: A Foreign Currency Non-Resident (FCNR) Deposit is unique to India and is
primarily meant for non-resident Indians (NRIs) and persons of Indian origin (PIOs), who want to hold monetary deposits in their
chosen foreign currency. Currency options available are usually the USD, GBP, EUR, JPY, AUD and CAD. A major advantage of
holding an FCNR deposit is that the depositor need not worry about exchange rate fluctuations and can choose a term between 1 to
5 years. These deposits play a important role in courtiers financial wealth creation. The Researchers have studied this important
topic with respect to its concept and meaning to create awareness amongst NRI’s and readers will be benefited by this by creating
interest in increasing these deposits.

Keywords: non-resident deposit, bank transactions, indian banking system, NPA, debit, credit, e-cash, online, server

1. Introduction incentive measures offered from time to time.

Against the background of chronic deficit in Balance of
Payment of India the potential of Non-Resident Deposits as a The Role of Non Resident Deposits
source of foreign exchange and its contribution towards NRI’s are the important for India since they have emotional
financing Capital Account Deficit. It is very important to and family bonding here. If planned properly to serve them
increase theses deposits in India which will add to our capital better they will keep faith in Indian banking system and will
gain in long run. save their hard and fast money in India. These deposits can be
The very theme of the research revolves around critical mobilized for various development activities in India.
analysis of the role played by Non-Resident Deposits in As stated above Non-Resident Deposits figure as one of the
contributing and correcting Balance of Payment deficit and items in Capital Account side of Balance of Payment under
therefore the study has Macro Economic significance. head ‘Net Non-Resident Deposits’ and is one of the factors
However, to gain more insight the study looks into Micro contributing in reducing overall deficit. In order to analyze
aspects from the perspective of Non-Resident Depositors and contribution of such net Non-Resident Deposit flow to the
Bankers who mobilizes Non-Resident Deposit Accounts. Balance of Payment the researcher has gone through the data
The significance of Non-Resident Deposits lies in the fact that (secondary source) available on Reserve Bank of India sites.
these deposits are ‘confirmed’ and ‘reliable’ source of foreign The data so obtained is converted into graphical form and
exchange as they are unconditional in nature. In fact one of same is presented below.
the major components of Non-Resident Deposits is in the form
Table 1: Table showing Non Resident Deposits from 2012-2016.
of FCNR Deposit Accounts (Foreign Currency Non-Resident
Account) which is immune to currency fluctuations. Year Net Non-Resident Deposits(US$)
It is observed from the available data that the very component 2012-2013 14842
of ‘Non-Resident Deposits’ as one of the items in the ‘Capital 2013-2014 38892
2014-2015 14057
Account’ in financing ‘Current Account’ of Balance of
2015-2016 16052
Payment is relatively low as compared to other items in the
Source: Data Extracted from https://www.rbi.org.in/
Capital account, in spite of significance of such deposits and

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Source: Table No.1.0 Above

Fig 1

The graph clearly depicts swings in Non-Resident Deposits marketing of this plus point and increase the deposits.
from the period 2012 to 2016 and clearly exhibits
inconsistency in the flow of Non-Resident Deposits. 3. The Rules of Opening Non-Resident Accounts in India
The major observations of the researcher are as given below- The Following are the Rules recently posted on RBI website
 Non-Resident Depositors that are spread across the globe through notification to open the NRI Account in India.
throw open huge potential to mobilize foreign currency. Definitions
 Non-Resident Depositors are keen to enhance their flows Some key terms used in the regulations are given below:
to deposit accounts subject to more facilities and consider 3.1 'Authorized Bank' is a bank including a co-operative bank
opportunity cost involved in alternative investment authorized by the Reserve Bank to maintain an account of
opportunities. a person resident outside India.
 Non-Resident Depositors expect incentives offered today 3.2‘Authorized Dealer’ is a person authorized as an authorized
require further liberalization. dealer under sub-section (1) of section 10 of FEMA.
3.3 'Deposit' includes deposit of money with a bank, company,
2. The Means of Non Resident Deposits proprietary concern, partnership firm, corporate body, trust
2.1 Foreign Currency Non Resident Deposit or any other person.
Foreign Currency Non Resident Deposit Meaning 3.4 A ‘Non-resident Indian’ (NRI) is a person resident outside
A Foreign Currency Non-Resident (FCNR) Deposit is unique India who is a citizen of India.
to India and is primarily meant for non-resident Indians 3.5 A ‘Person of Indian Origin (PIO)’ is a person resident
(NRIs) and persons of Indian origin (PIOs), who want to hold outside India who is a citizen of any country other than
monetary deposits in their chosen foreign currency. Currency Bangladesh or Pakistan or such other country as may be
options available are usually the USD, GBP, EUR, JPY, AUD specified by the Central Government, satisfying the following
and CAD. A major advantage of holding an FCNR deposit is conditions:
that the depositor need not worry about exchange rate a. Who was a citizen of India by virtue of the Constitution of
fluctuations and can choose a term between 1 to 5 years. India or the Citizenship Act, 1955 (57 of 1955); or
b. Who belonged to a territory that became part of India after
Foreign Currency Non Resident Deposit Example the 15th day of August, 1947; or
The FCNR deposit is created via remittance from India or c. Who is a child or a grandchild or a great grandchild of a
from an existing FCNR account. The minimum amount that is citizen of India or of a person referred to in clause (a) or
necessary for a FCNR deposit may differ in banks. A FCNR (b); or
deposit may be opened jointly with an NRI or PIO only. d. Who is a spouse of foreign origin of a citizen of India or
Loans against FCNR deposits may also be made available to spouse of foreign origin of a person referred to in clause
the depositor or to a third party at the behest of the depositor. (a) or (b) or (c)
FCNR deposits interest rates are modified every month.
FCNR deposits are generally dominated by major foreign Explanation: PIO will include an ‘Overseas Citizen of India’
currencies. Many international financial institutions with cardholder within the meaning of Section 7(A) of the
Indian branches offer FCNR deposits at attractive interest Citizenship Act, 1955.
rates to local residents with Indian businesses to effectively 3.6 ‘Permissible currency’ is a foreign currency which is
manage their overseas earnings. freely convertible.
This most important reason and benefit of opening NRE 3.7 ‘Relative’ means relative as defined in section 2(77) of the
accounts. Interest earned on NRE saving account as well on Companies Act, 2013.
NRE fixed deposit is tax-free in India. They are not counted 3.8 As FEM (Deposit) Regulations, 2000 have been repealed
even in your taxable income, so we can make the proper and replaced by FEM (Deposit) Regulations, 2016 with

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effect from April 1, 2016 (FEMA 5(R)), the term NRI, 6. NRE Account Gets Joint Holding Benefit
wherever it appeared, has been replaced by NRI and/or Another key benefit of NRE account is that you can jointly
PIO. Prior to this, PIOs were covered within the definition open it with another NRI e.g. your wife or your children. It's
of NRI. one of the best ways to manage your funds as your partner can
operate along with you. Having joint holding facility for NRE
4. Advantages of Non Resident Deposits in India account just makes it more attractive. See here for more
NRE Bank Account and Fixed Deposits If you are an NRI details of how to open joint NRE accounts.
(Non-Resident Indian) then you have access to a unique bank
account called NRE (Non-Resident external) account which 7. Mandate Holder Benefits
allows you to keep your money in Indian rupees. This account This is one more unique advantage of NRE saving accounts
then further allows you one of the best retrns some of the which allows you to appoint a mandate to operate your
benefits are as give below. account for your behalf. The mandate is nothing but an
authorization is given to a person to operate the customer's
1. Tax Benefits for the Depositers Who are Holding NRE bank account on his behalf. Banks like ICICI and HDFC
Accounts issues free cheque book and ATM card for mandate holder.
This is the single most important reason and benefit of Many NRIS make their parents as mandate holder so that they
opening NRE accounts. Interest earned on NRE saving can access the fund when they need. Here is a guide to tell you
account as well on NRE fixed deposit is tax-free in India. how to appoint a mandate holder in NRE account.
They are not counted even in your taxable income, in case you
have some income in India. Due to this feature, NRE fixed 8. Investment Benefits in Certain Banks
deposits are one of the most secure and high yield investment Many banks like HDFC and Axis bank allows NRIs to invest
option only available to NRIs. in Mutual funds by linking their NRE saving account to
Investment savings account. Some banks provide best plans of
2. Low Balance required for certain banks invetment.
Due to increased competition among public and private sector
banks e.g. SBI, ICICI, HDFC, Axis bank and YESBANK, the 9. NRI Global Offering Advantage
minimum balance required has dropped significantly. Since many Indian banks now have a global offering, opening
Nowadays many banks including ICIC, HDFC and Kotak an NRI account allows them to handpick exclusive offers
requires just Rs 10,000 as a minimum balance. Due to this catering to your needs both in India and abroad.
depositers can open the account and operate with minimum The global presence due to this possible.
funds in account during the course of the time.
10. Accessibility Advantage Through World
3. Repatriation Benefits for NRE in Their Accounts NRI saving account usually comes with Internation Debit
Another key advantage of NRE account is repatriation card, at least, I know that HDFC bank, Kotak Mahindra and
benefits. NRE saving account allows easy movement of funds ICICI does provide an International debit card to NRE account
because both you can repatriate both interest and principle holder. This gives you the unique accessibility advantage of
abroad. Funds in NRE accounts are fully and freely shopping worldwide, booking air tickets online, buying health
repatriable. It gives flexibility in account management. and life insurance, and withdrawing cash at abroad. Though,
beware, exchange rates are not best and there are charges
4. High-Interest Rate for the Depositers associated with international transactions especially cash
Both NRE saving account and NRE fixed deposit offer high- withdrawal. The exchange rates depend on various factors.
interest-rate though this varies between bank to bank. Some
banks like YESBANK offers around 6% interest rate for a 5. Barriers in Non Resident Deposits in India
certain amount in your saving account but most of the bank The Non Resident Deposits in India have following barriers
like ICICI and HDFC gives 4% per annum. The good part is the increase in these is possible only when all the barriers are
that interest rate is calculated on daily closing balance and overcome. Some of the major hurdles are as given below-
interest is paid half-yearly in June and December. The deposit 1. Infrastructural Facilities for Internet Backbone and
scheme are to studided properly by the depositers. Time to Banking system.
time the rules may vary which may affect the rate of interest. 2. Financial requirements in the initial stage are more for
Account Holders.
5. Convenience Benefits for NRE 3. Financial Provisions and support from Central
One more advantage of NRE accounts is convenience. It's Government to make these facilities available to NRIs.
easy to open an NRE account. Most of the banks allow you to 4. Opening New Websites for Such users Sector wise and
open NRE account online. You just need to fill a form online, maintain them properly.
take a printout, attach the self-attested copy of required 5. Availability of funds to provide Interest on these accounts.
documents and courier to the bank in India. Some bank even 6. Network and Computer Security Experts and Programmers
provides free pick up of documents and some other has Free to manage these system properly.
PO Box Service to send your documents depending upon
which country you live. Usually, Indian banks have better. 6. Future of Non Resident Deposits in India
The future of Non-resident Deposits in India is very bright and

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many NRIs are now believing the Banking system in India 12. http://www.indiastat.com
and one of the reliable banking system in world, the growth in 13. http://www.rbi.co.in
coming years in NRI deposits is possible due to government 14. http://www.proquest.uni.co
policies and policies of RBI also the number of NRI in future
will be seen as increasing. he dedicated efforts from
Government will be required and awareness of NRI and
people will also make good effect on use of these deposits for
the development of the country financially and gaining the
foreign exchange increased due to this.

7. Conclusion
The paper cover in brief about Non Resident Deposits its
concept, meaning, use, benefits and barriers. The country
cannot be developed with out using such new tools and
techniques for NRI depositors. The NRI activities are going to
increase in near future. The use of Internet is must to get
benefit from other developed countries. The main drawback is
awareness of English and use of technology at the grass root
level regarding NRI. The Government Local, State and at
Central have to take serious efforts to create awareness among
NRIs and provide facilities for the same. The Authors have
done decent contribution by creating the awareness and has
discussed benefits of Non Resident Deposits in India. In future
the growth in Non-resident deposits is expected and it is good
sign for the country as whole.

8. Acknowledgements
Author thanks all the well-wishers for the research
contribution to make this research possible. Help from Dr.
Anil Gaikwad in drafting the paper is very useful to me. All
the authors whose references are taken are acknowledged
through this paper.

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