RBI Offers NRIs 7% on Dollar Deposits as Special Window Reopens

The RBI has reopened a special window offering Non–Resident Indians (NRIs) up to 7% interest on dollar deposits, in a move reminiscent of the 2013 scheme introduced during a currency crisis under then-Governor Raghuram Rajan. That initiative brought in $34 billion in just a short time and the new program aims to attract such inflows to stabilize India’s external position.

The initiative comes at a time when global uncertainty, rising crude oil prices and a weakening rupee have put pressure on India’s foreign exchange reserves. In exchange for dollar deposits, RBI hopes to encourage NRIs to deposit money in India, and thus boost liquidity in India and the country’s balance of payments.

Dollar deposits under this window will be routed through Indian banks and then the funds will be put into domestic markets. The 7% return is much higher than what is typical for dollar deposits around the world, which makes this a good option for NRIs looking for safe and high yield investments.

The timing of the move is important. In 2013, India had a sharp depreciation in the rupee and capital outflow because of the Fed’s decision to withdraw quantitative easing. Rajan’s scheme helped restore investor confidence and stabilize the currency. Now, those conditions—volatile oil prices, geopolitical tensions and a strong U.S. dollar—have created vulnerabilities that RBI is trying to address with this proven strategy.

For NRIs, the scheme offers the prospect as well as the risk. For one thing, the high interest rate is the incentive to invest. Currency fluctuations and India’s macroeconomic instability could affect returns. Investors will need to weigh the benefits of high yields against the economic risks we have in the common market.

Finally, RBI’s decision to reopen the dollar deposit window shows action taken to boost India’s financial security. The central bank will use NRI savings to boost reserves and reassure markets. Is this scheme able to replicate 2013’s success? This will be dependent on the economy and on investor confidence but in India it will be a bold move to make in times of economic stress.