Kerala-based banks up NRE deposit ante

Raise interests on these deposits for the second time since rates were deregulated by RBI.

Though barely a fortnight has passed since the Reserve Bank of India (RBI) deregulated non-resident deposit rates, the rate war among banks has intensified.

Many Kerala-based banks have increased interest rates on non-resident (external) rupee (NRE) term deposits for the second time in a week. These banks typically have a high share of non-resident deposits in their total deposit base, owing to a large number of clients in West Asia.

Kochi-based Federal Bank and Thrissur-based South India Bank had, last week, announced a rise in NRE term deposit rates. Both the lenders have now revised their non-resident deposit rates again, to compete against large public and private sector banks.

NRE DEPOSIT RATE CARD Peak rate after rise (%)
Kerala banks	First rise	Second rise
State Bank of Travancore	8.00	9.50
South Indian Bank	6.75	9.25
Federal Bank	6.50	9.10
Dhanlaxmi Bank	8.00	Yet to decide
Other major banks		Rate

State Bank of India9.25 ICICI Bank9.25 Punjab National Bank9.25 HDFC Bank9.00 Source: Banks

The move follows large lenders like State Bank of India (SBI), ICICI Bank and HDFC Bank announcing sharp increases in NRE term deposit rates earlier this week.

Federal Bank had increased the interest rate on one year NRE deposits from 3.82 per cent to 6.50 per cent on December 19. The bank said it would offer this revised rate only for till December 31. However, even before this period was over, the private lender has increased the non-resident term deposit rate for the second time. It would now offer 8.25 per cent on one year NRE deposits of up to Rs 50 lakh, 8.75 per cent on deposits between Rs 50 lakh and Rs 1 crore, and 9.10 per cent on deposits above Rs 1 crore. The bank has also increased NRE deposit rates on maturities of more than one year.

“Initially, we had announced a moderate rise in the one-year NRE deposit rate, and had decided to watch the market. As large banks increased their rates quite aggressively, we also decided to revise our rates,” a senior Federal Bank official told Business Standard.

The private lender has about Rs 1,400 crore of NRE term deposits. The official said the bank’s margin was unlikely to be stressed in the near term, as the new rates would be applicable only on fresh deposits.

South Indian Bank, which had increased NRE term deposit rates for maturities ranging between one and 10 years to 6.75 per cent, has also raised its rates again. The lender said from December 27, it would pay 8.50 per cent interest on one-year deposits of up to Rs 50 lakh, and 9.25 per cent on deposits above Rs 50 lakh. The bank would also offer 8.50 per cent interest on one to two-year NRE deposits and 7.75 per cent on deposits for a maturity of over two years.

Other Kerala-based banks, including Dhanlaxmi Bank and State Bank of Travancore, are also expected to announce a second increase in their non-resident deposit rates soon.

“We are meeting at the end of this week to take stock. We will decide if there is scope for a further rise in our rates in the meeting,” said Salil Datar, head of branch banking and non-resident Indian business, Dhanlaxmi Bank. The Thrissur-based bank has about Rs 250 crore of NRE term deposits.

Datar said the bank did not foresee any near-term pressure on its margin because of the rise in rates. “Our base is not very large. We have the elbow room to increase our rates and grow business rapidly. I don’t think it would have any material impact on our margin.”

Dhanlaxmi Bank, which raised its NRE term deposit rates on Monday, pays eight per cent interest on deposits of one to three years, and 7.75 per cent on deposits of three to 10 years.

State Bank of Travancore (SBT), the only public sector bank based in Kerala, has also decided to revise its non-resident deposit rates for the second time from January 1. The bank, which raised these rates on December 24, currently offers up to eight per cent interest on these.

The bank would revise its rates to 9.5 per cent for one to three-year deposits and 9.25 per cent for three to five-year deposits from January.

“There is competition among banks in Kerala for non-resident deposits,” said P Nanda Kumar, managing director, SBT. He, however, added the impact on margins would be limited, as the bank was reducing its dependence on bulk deposits. Non-resident deposits currently account for around 12 per cent of SBT’s total deposits.

On December 16, RBI had deregulated interest rates Indian banks pay on NRE savings, term deposits and ordinary non-resident (NRO) savings accounts. The central bank had said rates on non-resident deposits could not be higher than the ones they paid on domestic term deposits of similar maturities.

Large lenders like SBI and ICICI Bank have raised their non-resident deposit rates aggressively. Both are currently offering up to 9.25 per cent on these deposits. While ICICI Bank’s rate rise is effective from December 29, SBI would offer the revised rates on NRE term deposits from January 1.