Foreign Banks Trigger Off Rate War
Foreign banks, led by Bank of America and ABN-Amro, have triggered a deposit rate war and are offering up to 17.75 per cent on the 46-60 day deposits.
Bankers believe that the foreign banks have been forced to raise their short term deposit rates as call money rates have sky rocketed and thereby worsened their asset-liability mismatch. Several private sector banks like IndusInd Bank, Global Trust Bank and HDFC Bank too have increased the short term deposit rate for 30-45 day deposits to above 11 per cent from around seven to eight per cent last week.
An official at a foreign bank said: Most foreign banks have an asset-liability mismatch. They normally lend more than they borrow. And so they rely heavily on the call money market. Now when the call rates go up, this asset-liability mismatch gets accentuated. And since the banks have to continue to rely on the call market, they have to raise their short-term deposit rates to such high levels.
Bank of America (BoA) has fixed the deposit rate in the banking industry for the period 61 days to 90 days at 15 per cent. A BoA official said the revised rate is in line with the money market conditions.
ABN AMRO was yesterday offering 15 per cent for deposits up to 30 days and 17.75 per cent for deposits between 46-60 days. An ABN AMRO official said, the rate is subject to revision depending on the asset-liability match.
For the period 30 to 60 days BoA is offering 13 per cent to depositors. Prior to the revision, the bank offered 9 cent on deposits between 90 days and 364 days, and 12 per cent for the period upto 60 days. It has left the deposit rates between one year and five years, and for between five years and six years unchanged at 11 per cent and 11.5 per cent respectively.
Hongkong Bank has effected a steep increase in its short term deposit rates. It is now offering 13 per cent for 30-59 days as against 10.50 per cent earlier, 12 per cent for 60-89 days as against 10.50 per cent earlier. HDFC Bank has also effected a 0.5 to one per cent hike on its individual fixed deposit scheme and monthly income plan schemes.
But PSU bank officials expect the RBI to inject liquidity and cool rates in the short term market. We do not expect the call rates to remain high for long. Because already the prime lending rates have gone up, the premium in the call markets are high and the industry is going through a recessionary phase. So it is not helping anyone. I expect the RBI to announce measures to inject liquidity, a PSU official said.
The public sector banks have raised short term rates only moderately, underlying their reduced reliance on the call rates. For instance, the Bank of India is offering six per cent for deposits between 30 to 60 days. For deposits upto 45 days, Punjab National Bank (PNB) and Punjab & Sind Bank are offering 6 and 7 per cent respectively. The Central bank is offering 7.5 per cent for 45 day deposits.
Foreign banks up PLR
Hongkong Bank yesterday hiked its prime lending rate (PLR) to 17.5 per cent. On January 22, it had increased its PLR to 15.5 per cent. Banks have started a second round of upward revision in interest rates and. Earlier ANZ Grindlays, which had hiked its PLR to 16 per cent from 14.5 per cent increased the same to 18 per cent. Among the smaller foreign banks, Bank of Nova Scotia hiked its PLR in two stages to 18.50 per cent.
The second round of increase in rates is on account of the fact that the RBIs tight money policy has led to call money rates ruling at an average of 70 per cent. Banks might be forced to raise interest rates if the gains from the initial hike in the lending rate is less than the increase in the cost of funds borrowed from the inter-bank money market, said a treasurer.
In addition to issuing certificate of deposit to raise resources, banks have also been hiking short term deposit rates in order to mobilize additional funds.