There is a need to tap more of those NRI investments

NRI investments in India primarily consist of fixed deposits. (iStockphoto)
NRI investments in India primarily consist of fixed deposits. (iStockphoto)

Summary

Among countries, the US, Singapore, UAE and UK are the top four countries that account for about 54% of Indian’s remittance inflows.

India has the world’s largest overseas diaspora, with 32 million Non-Resident Indians (NRIs) and Overseas Citizens of India (OCIs), as per a ministry of external affairs report. NRI investments in India primarily consist of fixed deposits. Direct equity and mutual funds get only 9% of NRI investments, contrary to common belief. Among countries, the US, Singapore, UAE and UK are the top four countries that account for about 54% of Indian’s remittance inflows.

Remittances have benefitted from a gradual structural shift in Indian migrant’s key destinations from largely low-skilled, informal sector employment in the Gulf Cooperation Council (GCC) countries to a dominant share of high-skilled jobs in high-income countries such as the US, UK and East Asia (Singapore, Japan), Australia and New Zealand.

NRIs can invest in shares or debenture of an Indian company through the stock exchanges, besides mutual funds, ETFs, government securities, treasury bills, bonds. They can do so via NRE (Non Resident External) account, or NRO (Non-Resident Ordinary) accounts. Their investments can either be on repatriation or non-repatriation basis, with investments made through the NRE account being repatriable, while those through the NRO account have a repatriable limit of $1 million every financial year.

Over and above the $1 million limit, the following transactions are permissible by RBI: Interest Income earned on bank savings balances and deposits, dividend income, and all current business income earned in India

NRIs can manage these accounts by either appointing a mandate holder to look after their NRE or NRO accounts in India, or executing a power of attorney to carry out their investments, or do it themselves through an online stock broker.

NRIs can invest in futures & options segment of the exchange out of rupee funds held in India on non-repatriation basis. However, they are not permitted intra-day transactions in cash segment and have to take delivery of shares purchased and give delivery of shares sold. Short selling and currency derivatives trading is not permitted.

As a financial intermediary serving the Indian diaspora by opening up the domestic market opportunities to them, we have noticed some concerns related to their onboarding process. If these are addressed constructively, we are confident that inflows from NRIs could see a healthy rise.

The absence of online KYC (know your customer) process for NRI clients makes their onboarding difficult. If the facility of video KYC, which is available for resident clients, is extended to NRIs too, it would greatly ease their onboarding process. Also, the list of KYC documents and their submission process could be made simpler, which currently is very tedious and costly. Over 60% of the applicants who have shown an interest in the account opening process do not complete the attestation formalities and thereafter abandon the account opening journey as the attestation process in offshore jurisdictions is cumbersome. Simplification of the tax treatment of employee stock options (granted and exercised) by the India-domiciled employers of NRIs would go a long way in simplifying their taxation compliances.

NRIs are keen to contribute to India in a multitude of ways. As India cements its position as a preferred global investment destination, the inflows from the NRI community can also grow significantly from current levels. This inflow is more stable and predictable and sticky against some of the institutional inflows which, by definition, is opportunistic in nature.

If the government addresses some of the operational and process hiccups NRIs face related to their onboarding and taxation, we foresee significant additional inflows into other asset classes like equity and mutual funds.

Vijay Chandok is MD & CEO, ICICI Securities

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