After the global economic crises heightened in the aftermath of the fall of banking giant Lehman Brothers in September 2008, global investors were pulling out their investments from developing markets like India. In 2008-09, foreign institutional investors (FIIs) pulled out $13.8 bn from India.
For the nine months ended December 2008, net flows under non-resident deposits were $2.1 bn as against $0.93 bn in the corresponding period in 2007. However deposits under Foreign Currency Non-Resident (Banks) - FCNR (B) - declined by $1.2 bn during April- December 2008. But the other two non-resident deposits - Non-Resident External rupee account (NRE) and Non-Resident Ordinary rupee account (NRO) - witnessed accretions.
Repatriation is allowed under both FCNR and NRE accounts. However, foreign exchange risk is borne by banks in the case of FCNR, while in NRERA, it is the individual depositor who bears the exchange risk.
Over a three year time period, both NRE and NRO have seen growth, but deposits under FCNR have declined. The total outstanding non-resident deposits stood at $40.3 billion at the end of December 2008, as compared to $43 billion year earlier.
The other short-term capital flow - trade credit - witnessed significant contraction in the nine months ended December 2008, as overseas banks reduced their exposure in the wake of the global crisis.
Net short-term trade credit stood at $0.5 bn during April-December 2008, as compared to $10.7 bn in the corresponding period of 2007.