Money
NRI Foreign Currency Deposits: How Indians Abroad Help Protect the Rupee
When the rupee weakens, India can ask its citizens living abroad to deposit foreign currency in Indian banks — but this clever tool comes with a hidden cost that every family should understand.
$34 billionForeign currency raised from NRIs in 2013 to stabilise the rupee
The facts
- 1The Reserve Bank of India (RBI) allows Non-Resident Indians (NRIs) — Indians living abroad — to open special foreign currency accounts called FCNR(B) deposits in Indian banks, where they earn interest in dollars, euros, or other currencies.
- 2When NRIs put foreign currency into Indian banks, the RBI gains more dollar reserves, which it can use to buy rupees in the open market and slow down the rupee's fall — similar to how a cricket team's reserve batters steady a chase.
- 3India has used FCNR(B) deposit drives before: in 2013, when the rupee had dropped sharply, the RBI raised about $34 billion from NRIs in just a few months to stabilise the currency.
- 4The risk is that these deposits must be repaid in foreign currency when they mature — so if a large amount comes due at the same time, India must have enough dollars ready, or the rupee faces fresh pressure.
- 5RBI and the government must balance short-term relief against long-term external debt: more NRI foreign currency deposits increase India's liabilities abroad, which credit-rating agencies watch closely.
Why it matters
For families with relatives abroad, these deposits can offer good interest rates. But for India as a whole, leaning too heavily on NRI deposits to defend the rupee adds to external debt — money owed in foreign currency — which can make the economy more vulnerable if global conditions change.
Sources
- Reserve Bank of India (RBI)
- Mint (Livemint.com)
