PM Modi wanted the non-residential Indians to contribute in dollars to build the nation. However NRIs have taken a step back by withdrawing the net $17 billion from Indian banks in October and November. As a result, the rupee stoops to its historic low of `68.855 against the dollar in intraday trade on November 24, seen only once before in 2013 when the country was battling a currency crisis. Bankers said the development reflects FCNR-B (foreign currency non-resident -bank) absolution in these months. About Rs 1.16 lakh crore in rupee terms were not even seen after Lehman collapse in 2008.
“There are a combination of factors responsible for the outflow. First, the FCNR-B deposits had to move out on redemption which was spread over 2-3 months, Second, expectations of (US) Fed rate hike would have brought about exogenous withdrawals,” said Madan Sabnavis, chief economist at CARE Ratings.
As per reports from Economics Times NRIs withdrew a net amount of $11.412 billion of FCNR-B (foreign currency nonresident bank) deposits in November alone, the highest in a single month. Foreign institutional investors, too, shook off a net $5.5 billion from equities markets in November after the government banned Rs 500 and Rs 1,000 notes, challenging the Reserve Bank of India’s exchange rate management skills.
Chief economist at Axis BankBSE 3.00 %, Saugata Bhattacharya said, “FCNR repatriation of about $19 billion over September November 2016 was very smooth, entirely on expected lines. RBI had earlier estimated that about $20 billion would flow out. The rupee has been very stable during the process, gently guided by RBI. “
He said the US dollar is expected to strengthen further, leading to “a gradual and modest depreciation of the rupee, likely at about the differentials of India’s and offshore inflation rates, adjusted for productivity.”