To attract money, government/RBI allows NRIs to deposit funds in Indian Banks, usually, at a lucrative interest rate. They can be of various forms viz - short term, long t
…erm etc like domestic savings accounts and Fixed Deposit accounts. This at the same time serves for the domestic credit needs of Indian Economy. NRI deposits are entirely repatriable (meaning, NRIs can pull out deposits whenever they wish to). NRIs are tempted to invest in India because of the high deposit rates in India (Most of the developed countries in which they live offer low, even close to zero, interest rates on deposits). Their Possible Impacts on economy/banking system can be - a. They can also lead to exchange rate destabilizes. When currency starts depreciating they can also start fleeing as this would give them higher returns due to favorable exchange rate to them. This can further affect exchange rate as their volume can be significant (at present they are worth around $50 billion, as of May 2012) b. Secondly, they constitute almost 10% of net worth of Indian Banking System. This much of exposure is significant for health of domestic banks also. c. Maturity of Short Term NRI deposits in current situation, when Rupee is weak, may further put depreciatory pressure on Rupee. Different popular Banks like Axis, IDBI, SBI and NBFCs like Bajaj Finserv are offering high interest rate on NRI deposits. (MORE) 
