Private banks raise rates on non-resident deposits

Private sector banks have started increasing interest rates on non-resident deposits, barely a week after these rates were deregulated by the Reserve Bank of India (RBI).

HDFC Bank, the country’s second-largest private lender, was the first major bank to increase the rates. The bank would offer nine per cent on deposits of a one to two-year maturity period, up to 8.5 per cent on two to three-year deposits, and 8.25 per cent on deposits of three to five years.

“We want to make our presence felt in this market. Despite the HDFC brand, we have not been getting our share of the wallet. So, we decided to capitalise on this opportunity and strengthen our non-resident deposit base by offering higher rates,” Abhay Aima, group head of equities and private banking, HDFC Bank, told Business Standard.

He, however, added the bank would not aggressively open foreign branches to tap this deposit base. “We will not get into an exercise of hoisting our flag in different countries. Setting up a branch in a foreign location is nearly as good as setting up a bank,” Aima said.

The share of non-resident deposits to the bank’s total deposit base was “marginal” and the rate hike was not likely to impact the lender’s net interest margin, he said.

Axis Bank, the country’s third-largest private lender, also raised its NRE term deposit rates on Thursday. The bank would offer 6.5 per cent on these deposits.

So far, Lakshmi Vilas Bank has been the most aggressive in increasing the interest rate on non-resident deposits. Effective on Thursday, the bank would offer 10 per cent interest on non-resident (external) rupee (NRE) deposits of one to two-year maturity periods, eight per cent on deposits of two to three years and seven per cent on deposits for three years or more. Other private lenders, including Federal Bank, Dhanlaxmi Bank and South Indian Bank, have also announced a rise in NRE term deposits.

“The rise in interest rates on NRE term deposits follows the recent deregulation of interest rates on NRE deposits by RBI. The increase in interest rates would help our NRI customers maximise returns on their savings,” said Salil Datar, head of branch banking and NRI business, Dhanlaxmi Bank.

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. It added banks may take the 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 due to such deregulation and ensure asset-liability compatibility from a systemic risk point of view.

While none of the public sector banks have announced a revision in their non-resident deposit rates, state-run lenders that have significant foreign presence are expected to raise their rates soon.

According to a senior official at Union bank of India, the bank has already decided to increase non-resident deposit rates, and is set to make a formal announcement on this soon.