Foreign banks may skip savings deposit rate war

Limited branch networks are unlikely to persuade foreign banks in India to increase the interest rate on savings deposits aggressively, since most of these lenders have a high proportion of low-cost retail deposits in their total deposit base.

According to bankers, foreign lenders would wait for large Indian private sector banks to revise savings deposit rates before deciding their own. “We will wait and see how the market evolves before taking a call on our savings deposit rate. We will also closely watch the actions of our immediate competitors, typically other foreign banks and large domestic private banks, with whom many of our clients may also have banking relationships,” said Gannesh Bharadhwaj, head (retail banking and wealth management), HSBC India.

With 50 offices, HSBC has the second-largest branch network among foreign banks in India. As of March-end, the share of low-cost current account and savings account (Casa) deposits to of HSBC’s total deposits in India was 50 per cent.

“Any bank, foreign or domestic, that has a high share of Casa deposits would not be aggressive in taking the lead and increasing the savings deposit rate. Casa deposits are a function of the quality and depth of relationships with clients, and not just the number of branches,” Bharadhwaj said.

On October 25, the Reserve Bank of India (RBI) had allowed banks to decide their own interest rate on savings deposits. The central bank, however, asked banks to pay a uniform rate on savings deposits up to Rs 100,000, irrespective of the amount in the account. Lenders may offer differential rates on deposits above Rs 100,000, but should not discriminate between customers on interest rates for similar deposit amounts, it had said.

While small and mid-sized private sector lenders like Kotak Mahindra Bank, YES Bank, IndusInd Bank and Ratnakar Bank have raised their savings deposit rates by 150-200 basis points, large private sector banks and state-run lenders are yet to announce any revision in their savings deposit rate.

“The de-regulation of savings deposit rate happened early last week. We are examining the situation. It is a little early to say by how much we will raise our savings deposit rate,” said Shyamal Saxena, general manager (retail banking products and consumer banking), Standard Chartered Bank, India and South Asia. Standard Chartered Bank, which has the largest network among foreign banks in India with 94 branches, had a Casa ratio of a little over 40 per cent, as of March-end.

“A lot depends on the deposit mix. Currently, foreign banks have a good Casa mix and hence, there are no compelling reasons for us to raise the savings deposit rate aggressively,” said a senior official with a Mumbai-based foreign bank, on the condition of anonymity. Bankers said raising the savings deposit rate alone may not help foreign banks mop retail deposits, since savings accounts were usually used for transactional purposes.