To attract money, government/RBI allows NRIs to deposit funds inIndian Banks, usually, at a lucrative interest rate. They can be ofvarious forms viz - short term, long term et
…c like domestic savingsaccounts and Fixed Deposit accounts. This at the same time servesfor the domestic credit needs of Indian Economy. NRI deposits are entirely repatriable (meaning, NRIs canpull out deposits whenever they wish to). NRIs are tempted toinvest in India because of the high deposit rates in India (Most ofthe developed countries in which they live offer low, even close tozero, interest rates on deposits). Their Possible Impacts on economy/banking system can be- a. They can also lead to exchange ratedestabilizes. When currency starts depreciating they can also startfleeing as this would give them higher returns due to favorableexchange rate to them. This can further affect exchange rate astheir volume can be significant (at present they are worth around$50 billion, as of May 2012) b. Secondly, they constitute almost 10% of net worthof Indian Banking System. This much of exposure is significant forhealth of domestic banks also. c. Maturity of Short Term NRI deposits in currentsituation, when Rupee is weak, may further put depreciatorypressure on Rupee. Different popular Banks like Axis, IDBI, SBI and NBFCs like BajajFinserv are offering high interest rate on NRI deposits. ( Full Answer )