The growth in popularity of investments in India amongst wealthy Non-Resident-Indian’s (NRIs) is creating increased opportunities for the wealth management industry in the country. A rise of interest in this client segment from domestic banks is creating a more competitive environment that helps cater to the varying demands of the NRI population. John Schaffer delves into the latest WealthInsight report to find out more
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By GlobalDataA new WealthInsight report, 2020 Foresight: Non-Resident Indians, reveals that wealthy Non-Resident Indians (NRIs) are favouring India as their key investment destination, and will continue to do so in the next five years.
An NRI, by definition, is an Indian citizen who holds an Indian passport and has temporarily moved to a different country for employment, residence, education or any other purpose.
According to WealthInsight, the global population of NRIs stood at approximately 28.45m in 2015. There were approximately 236,000 millionaires – each with an average wealth of over $3.83m. The total wealth of NRI millionaires was estimated at around $915bn in 2015 and is expected to reach $1.4tr by 2019 – representing a significant opportunity for both domestic and international private banks to gain NRI clients.
PBI highlights the five key reasons behind NRIs investing back in India:
1. India is the world’s fastest growing economy
India’s economy overtook China in late 2015 to become the world’s fastest growing major economy. The economy grew by 7.3% in the last three months of the year, compared to China’s 6.8% during the same period.
Although Indian consumer confidence has fallen over the past year, partly as a result of additional services tax, the Indian government has undertaken several initiatives to stimulate the country’s overall economic growth. These include recent interest rate cuts, the launch of the Made in India program, reforms in the power generation industry, and strengthening of the country’s telecommunications and internet networks. It has also opened up key sectors such as railways, defence, infrastructure, and medical devices to attract higher levels of foreign direct investment (FDI).
2. Indian banks are showing keen interest in NRI wealth management
India’s wealth management and private banking industry is currently dominated by the large foreign banks, such as Citibank and HSBC. However, local players such as ICICI, HDFC and State Bank of India (SBI) are showing interest in the market and getting a stronghold on the sector.
Indian banks are also expanding their presence in popular NRI destinations abroad to gain share of wallet.
3. Depreciation of the Rupee against the Dollar
According to WealthInsight, the US is the most popular destination for NRI millionaires with over half the global population. The US population of NRI millionaires stood at approximately 133,564 in 2015- a share of 56.5%.
The value of the rupee against the dollar depreciated from INR53.01 in December 2011 to INR66.20 in December 2015 – creating an attractive opportunities for NRI investors looking to invest and remit funds to India (especially if they have Dollar denominated funds).
4. India’s manufacturing industry is booming
An initiative to provide a much-needed thrust to India’s manufacturing sector was the launch of the Made in India program in 2014. This initiative is expected to raise the manufacturing sector’s contribution to GDP from 17.7% in 2015 to 25% in 2020.
To achieve these goals, the government of India replaced its obsolete and obstructive framework with a user-friendly system, with a focus on driving investment and innovation, protecting intellectual property, and developing high-quality infrastructure.
This has helped India in improving its rank in terms of ease of doing business. At the end of 2015, the country ranked 130 of 189 nations, an improvement of four places from the previous year. This development has piqued the interest of wealthy NRIs.
5. Strong home ties
There is clearly a strong home bias amongst NRIs, which fuels the demand for Indian investments. Wealthy NRIs tend to have multiple business interests in the country, and therefore have a vested interest in the strengthening of India’s economy.
Dr. Roselyn Lekdee, economist at WealthInsight, says:
"Most of the NRI millionaires are self-made entrepreneurs who still have strong connections with their home country. According to the World Bank, India was the world’s largest recipient of remittances in 2015, largely from the Gulf countries.
"While global economic uncertainties continue to hamper the Indian economy, depreciation of the rupee could provide opportunities for the NRI millionaires to develop stronger ties with their home origin."
The high level of remittances received in India also presents an opportunity for the wealth management industry. Of the remittances received annually in India, 49% are used for day-to-day expenses by families, and around 20% are deposited in banks and earn relatively low interest.
As a result, nearly 20% of remittances represent a theoretical market for banks and asset management companies. This business alone is worth $14bn annually for wealth management firms in India, according to WealthInsight. The remittance market is expected to grow over the next five years, as NRIs take advantage of the current depreciated value of the rupee against the US dollar.
