Foreign Banks Pare Deposit Rates

As a first step in the correction of interest rates, a section of the foreign banks this week announced a cut in their deposit rates by nearly 300 basis points. These banks include Commerzbank AG, Deutsche Bank AG, Bank of America and Bank of Nova Scotia.

Analyst said foreign banks that were offering higher rates are now rationalising the same by cutting their deposit rates. The cut in the deposit rates also signals the easing of the liquidity conditions in the money market, he added.

After the Reserve Bank of India announced a hike in cash reserve ratio by 50 basis point to 10.5 per cent, the banking sector witnessed a tight liquidity scenario which sent call rates skyrocketing to 140 per cent. Reportedly, banks facing severe liquidity crunch offered exorbitant rates on short-term deposit to attract funds.

 

Commerzbank reduced its deposit rate to 11 per cent from 15 per cent for 30 to 60 days and simultaneously hiked rates for deposits of 61 to 90 days to 14 per cent from 11.5 per cent. Sources said,

The bank is offering the highest rates for the 61 to 90 day slab against any other bank at present.

Deutsche Bank too reduced term deposit rates from 15.5 per cent to 11 per cent for a period less than six month. It offers 13 per cent interest for deposits of six months against the earlier offered 13.5 per cent, while for deposits beyond six months the new rate is 11 per cent compared with the earlier offered rate of 12 per cent.

Sources said Credit Lyonnais and some other foreign banks are considering a downward revision of deposit rates and will announce their decision within next few days.

An ICICI Bank official said the foreign banks which had cut down their rates had to do so as they had hiked the rates too sharply. He felt this was only a correction and did not yet signal a deposit rate war or an easing of interest rates or liquidity in the banking system.

Meanwhile the nationalised banks and the new generation private sector banks have adopted a cautious stand. M G Bhide, chairman and managing director, Bank of India, said the bank had no plans to cut rates and had not taken a view of the market at this point.

Presently we do not want to disturb the interest rate structure, an IDBI Bank official added.Another private sector bank official said, If the call money rates continue to rule at a lower level for the next 10 days there is a possibility of a one percentage cut in the deposits rates.