NRI equity investments slow to 6% growth as KYC rules lag

Key Takeaways

• NRI investment growth in Indian equities fell from 48% to just 6% year-over-year despite account openings nearly doubling
• KYC processes still require physical notarisation in most countries, taking 45-50 days versus 7 days with e-notarisation
• Brokers like Zerodha, Angel One, and Fyers are betting on regulatory easing to unlock the affluent NRI segment

Non-resident Indian investments into Indian stock markets have hit a wall. Despite NRI demat account openings nearly doubling from 511,443 to 926,741 over three years, the money flowing in has slowed dramatically. Investment growth dropped from 48% in 2023 to just 6% this year, reaching Rs 6 lakh crore in May. The culprit, according to brokers: compliance rules that treat NRIs as high-friction customers even as India courts their capital.

What's blocking NRI capital from Indian markets?

The numbers tell a clear story. In the year ending May 2024, NRI holdings in Indian demat accounts surged 48%. The following year, growth halved to 12%. This year, it crawled to 6%. The deceleration happened even as geopolitical uncertainty pushed wealthy diaspora investors to look for exposure to India's growth story.

Stock brokers point to Know Your Customer regulations as the primary bottleneck. Unlike domestic investors who complete KYC digitally in minutes, NRIs face physical document requirements, consulate visits, and notarisation processes that can stretch to 45-50 days. The friction is enough to make investors park money in simpler instruments like bank deposits or mutual funds instead of direct equity exposure.

"There are still some teething challenges around KYC, notarisation — the process is mostly physical," said Tejas Khoday, cofounder of Bengaluru-based broker Fyers. "Otherwise, we believe that this is a market waiting to be opened up and sizeable funds can be attracted into India by this route."

E-notarisation cuts onboarding from 50 days to under 7

Some progress has arrived. SEBI-registered KYC Registration Agencies enabled e-notarisation in September-October last year, covering 50+ countries including the USA, UK, and UAE — the three largest NRI population centres. The change compressed KYC completion from 45-50 days to under seven.

Rainmatter-backed startup Rupeeflo has positioned itself in this gap, enabling digitised notarisation across 60+ countries. "We are trying to fully digitise the KYC flow and are in consultations with multiple regulatory authorities along with stock brokers," said CEO Dharmendra Maurya. The company processes around 3,000 accounts monthly, growing 60-70% each quarter.

The fix is partial. E-notarisation helps with document verification, but NRIs still must route transactions through Non-Resident Ordinary (NRO) accounts, adding another layer of banking friction. Full digitisation remains a regulatory conversation rather than a deployed solution.

Why brokers are betting on NRI expansion anyway

Despite the compliance drag, new-age brokers are investing in this segment. Zerodha opens 1,500 to 2,000 NRI accounts monthly and serves around 80,000 NRI customers already. "We are very bullish about this opportunity, given that NRIs want to participate more in the India growth story," said Somnath Mukherjee, vice president of corporate development at Zerodha.

Angel One is working with technology partners to simplify NRI onboarding. "The recent amendments governing investments by NRIs and OCIs should provide a significant boost," said Amit Majumdar, group chief strategy officer.

The logic is straightforward. NRIs are typically wealthier than average domestic retail investors, maintain strong ties to India, and represent a capital pool that largely sits in low-yield bank deposits. If compliance eases, these customers could deploy significantly more into equities. Bank-led brokers have traditionally dominated this segment because NRO accounts already sit with banks. Fintech brokers see an opening if they can compete on user experience despite the regulatory overhead.

The policy gap: remittances vs. investments

India receives over $125 billion annually in remittances, more than any other country. Policy attention has focused heavily on making these transfers cheaper and faster. But remittances flowing into bank deposits represent a fraction of the potential. Direct equity investment channels remain comparatively neglected.

The contrast is stark. A U.S.-based NRI can send money to an Indian bank account through multiple low-cost channels. But opening a brokerage account to invest that money takes weeks of paperwork, notarisation, and verification steps that domestic investors never face. The friction pushes capital toward passive instruments rather than active market participation.

Industry insiders want regulators to treat investment KYC with the same digitisation urgency applied to remittance rails. The argument: affluent NRIs represent patient capital that could provide stability to domestic markets, unlike the hot money from foreign institutional investors that flows in and out with global sentiment.

Frequently Asked Questions

Why are NRI investments in Indian equities slowing down?

Stringent KYC compliance rules requiring physical notarisation and lengthy verification processes are deterring NRIs from investing. The process can take 45-50 days in countries without e-notarisation, compared to minutes for domestic investors.

How many NRI demat accounts exist in India?

As of May 2025, there are 926,741 NRI demat accounts with Indian stock brokers, up from 511,443 three years ago. These accounts hold a combined value of Rs 6 lakh crore.

What is e-notarisation for NRI KYC?

E-notarisation allows NRIs to complete document verification digitally rather than through physical notarisation at consulates. SEBI-registered KRAs enabled this in 50+ countries starting September-October 2024, reducing KYC completion time from 45-50 days to under 7 days.

Which brokers are actively targeting NRI investors?

Zerodha, Angel One, and Fyers are among the new-age brokers expanding NRI services. Zerodha currently serves around 80,000 NRI customers and opens 1,500-2,000 new NRI accounts monthly.

Can NRIs invest directly in Indian stocks?

Yes, NRIs can invest in Indian equities through Portfolio Investment Scheme (PIS) accounts, but they must route transactions through designated NRO accounts and complete KYC with SEBI-registered entities.

Source: Tech-Economic Times / ET