Banks hike NRI deposit rates by 75 basis points
Many commercial banks on Monday raised the interest rate on NRI deposits by 75 basis points (bps) to attract foreign currency resources to the country. This follows the Reserve Bank of India’s (RBI’s) decision to raise the interest rate ceiling on foreign currency non-resident (FCNR) deposits by 75 bps to London Inter Bank Offered Rate (Libor) plus 100 points.
Similarly, it raised the ceiling by 75 bps on non-resident (external) rupee accounts (NRE) to Libor plus 175 bps.
Since October 2008, the interest rate ceilings on FCNR (B) and NRE term deposits were increased by 100 basis points each.
A Bank of Baroda (BoB) official said the system is facing a shortage of dollar resources. It is possible that NRIs may move funds to India expecting better returns when the interest rates in developed countries are being slashed. However, it was too early to see an impact.
ICICI Bank, India’s second largest banking entity, revised the interest rates on its NRE fixed deposits and FCNR(B) deposits with effect from November 18, 2008.
The one-year NRE deposit rate has been increased by 75 bps to 4.92 per cent. For FCNR (B) deposits denominated in the US dollar, the interest rate for one year has been increased by 75 bps to 4.17 per cent paid annually whereas for FCNR (B) deposits denominated in the British pound, the rate has been increased to 7.01 per cent.
State Bank of India, the country’s largest lender hiked interest rates on its foreign currency and rupee deposits by non-residents with effect from on Monday. For NRE (rupee) deposits for a duration of one year to less than two years, the rate has been increased to 4.92 per cent from the earlier 4.17 per cent, a release issued here said. For FCNR (B) dollar-denominated deposits, the interest rate has been hiked to 4.17 per cent from 3.42 per cent and for two years and above but less than three years, the new rate is 3.66 per cent from the earlier 2.91 per cent.
| RAISING THE BAR Bank of Baroda has raised interest rates on FCNR (B) deposits | ||||||||
| Maturity period In per cent Effect form |
Rate of interest | |||||||
According to RBI data, in the April-September 2008 period, banks saw a net outflow of $720 million from FCNR (B) deposits. The outstanding FCNR (B) deposits at the end of September stood at $13.44 billion. The NRE deposits saw an inflow of $780 million in six months, taking the deposit base to $23.75 billion. The size of NRI deposits at the end of September was $40.34 billion.
Other banks, which have revised the rates include Punjab National Bank while HDFC Bank is expected to revise its rates tomorrow.
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First Published: Nov 18 2008 | 12:00 AM IST