Nri Flows Into Indian Equities Dip As Compliance Rules Bite

At a time when foreign deposits into Indian banks are dominating policy conversations, investments by non-resident Indians (NRIs) into Indian stock markets have also slowed down, data from the central depositories showed.While larger geopolitical uncertainties coupled with the underperformance of the Indian markets have played a critical role in this slowdown, stringent and cumbersome know your customer (KYC) regulatory guidelines pertaining to NRI customers are a major reason, according to stock brokers.While digitisation to an extent has definitely helped, industry insiders want more relaxations as they believe this could boost remittance flows into the country, beyond bank savings, mutual funds and further into the vibrant domestic equities markets.According to data sourced from stock market depositories, there were 926,741 NRI accounts opened by Indian stock brokers as of May, up from 511,443 accounts three years ago.The combined value in the demat accounts of these customers stood at Rs 6 lakh crore as of May, showed industry data captured by the two centralised depositories, CDSL and NSDL.While the number of retail foreign investors opening demat accounts has grown steadily, there has been a slowdown in terms of funds invested over the past two years. In the year to May, funds invested increased 6% to Rs 6 lakh crore from Rs 5.7 lakh crore. In the preceding year, the value had risen 12% from Rs 5.1 lakh crore, after a 48% surge recorded in the year to May 2024.However new-age brokers such as Zerodha, Angel One and Fyers are hopeful that this market will open up soon and a huge investment opportunity will not go untapped by NRIs, who are mostly well-off and maintain strong ties with India."We are very bullish about this opportunity, given that NRIs want to participate more in the India growth story, processes and regulations around customer onboarding are getting easier. We are already opening around 1,500 to 2,000 accounts for NRIs per month and catering to around almost 80,000 NRI customers already,” said Somnath Mukherjee, vice president, corporate development at Zerodha.This segment has historically worked with bank-led brokers for their trading requirements, according to industry executives, because in any case these customers have to use their designated Non-Resident Ordinary (NRO) accounts for such transactions. But, increasingly, NRIs are opening up to trying new-age fintech broking platforms.“There are still some teething challenges around KYC, notarisation—the process is mostly physical. Otherwise, at Fyers, we believe that this is a market waiting to be opened up and sizeable funds can be attracted into India by this route,” said Tejas Khoday, cofounder of Bengaluru-based stock broker Fyers.Some relaxation through e-notarisation is helping tech-led brokers as well, the executives said. Rainmatter-backed Rupeeflo is one such startup which has enabled digitised notarisation in more than 60 countries for NRIs.Rupeeflo CEO Dharmendra Maurya said the SEBI registered KYC Registration Agencies (KRAs) opened up e-notarisation around September-October last year, helping reduce the time taken to complete the KYC of customers to less than seven days from around 45-50 days in 50+ countries, such as the USA, UK and UAE, which have the biggest NRI populations.“We are trying to fully digitise the KYC flow and are in consultations with multiple regulatory authorities along with stock brokers, but even now we are processing around 3,000 accounts every month, growing by 60-70% every quarter,” Maurya added.Rupeeflo is helping both bank-led brokers and new-age ones to improve the KYC flow for NRI customers the world over, with its business focused on cross-border financial services.Mumbai-based Angel One, one of the largest stock brokers in the country, also said that it is convinced about this opportunity and views the NRI segment as long-term positive.“The recent amendments governing investments by NRIs and OCIs (Overseas Citizens of India) should provide a significant boost. We are also working with technology partners to simplify parts of the NRI onboarding journey and make the experience more seamless,” said Amit Majumdar, group chief strategy officer, Angel One.