Mid-size private banks hike rates to increase NRI deposit base

Mid-sized private banks are looking to strengthen their non-resident deposit bases by offering higher rates. This follows the Reserve Bank of India (RBI) deregulating interest rates on these deposits.

Federal Bank and South Indian Bank have already announced 268-324 basis points rises in their non-resident (external) rupee (NRE) term deposits, and many other private banks are expected to follow.

Kochi-based Federal Bank said it would offer interest of 6.5 per cent on NRE term deposits with a one-year maturity period, compared with 3.82 per cent earlier. Its Thrissur-based rival, South Indian Bank, has increased NRE term deposit rates for maturities ranging between one and ten years to 6.75 per cent. Earlier, the bank offered 3.51-3.82 per cent on these deposits across maturities.

N Kamakodi, managing director and chief executive, City Union Bank, said, “We will be increasing our rates in a week's time. The rates would be closer to domestic deposit rates. The rise is most likely to happen in a one-year bracket." The Tamil Nadu-based private lender has around Rs 200 crore deposits in the non-resident category.

On Friday, RBI had deregulated interest rates that 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 rates they paid on domestic term deposits of similar maturities.

It had said the revised deposit rates would apply only on fresh deposits and on renewal of maturing deposits and a bank should offer uniform rates at all its branches. The central bank said banks may take prior approval of their respective boards or asset-liability committees while fixing interest rates on such deposits. The banking regulator had also directed banks to monitor their external liabilities arising due to such deregulation and ensure asset-liability compatibility from a systemic risk point of view.

P R Somasundaram, managing director and chief executive of Laxmi Vilas Bank, said, "We have a small base of non-resident deposits right now. But it would be one of our focus areas. We would take a decision on raising rates on these deposits soon. Our asset-liability committee would meeting shortly to decide on this."

According to Bipin Kabra, chief financial officer, Dhanlaxmi Bank, the deregulation of non-resident deposit rates has allowed banks to attract non-resident Indians to park their deposits with Indian lenders. The bank's asset-liability committee would soon meet to revise non-resident deposit rates.

However, state-run lenders are yet to decide whether nor not to increase non-resident deposit rates aggressively. Bank of India, which has significant foreign presence, said it would wait for other players before revising their rates. "No firm view has been taken so far. I cannot give a timeline as to when these rates will be revised," a senior official of Bank of Baroda said.

State Bank of India (SBI) officials said there could be a rise of 200-300 basis points in the bank's non-resident deposit rates, but added the bank was yet to decide when the rate rise would be effective. State Bank of Travancore may increase its non-resident deposit rates before its parent, SBI, revises the rate, as the associate bank faces competition from mid-sized private banks in Kerala.

Outstanding deposits in NRE accounts stood at $25 billion and NRO accounts stood at $11 billion at the end of October, RBI data showed.