August 26, 2013
CHENNAI: Non-resident Indians are being wooed with higher rates of interest by several banks after the Reserve Bank of India allowed lenders to offer NRIs a better return than local depositors and relaxed reserve requirements on these deposits.
August 26, 2013
CHENNAI: Non-resident Indians are being wooed with higher rates of interest by several banks after the Reserve Bank of India allowed lenders to offer NRIs a better return than local depositors and relaxed reserve requirements on these deposits.
The freedom to price deposits is available only on those with tenures above three years. On its part, Federal Bank has hiked its non-resident external (NRE) term deposit rates in the three-year and above bucket to 9%, which is higher than the 8.75% offered on identical domestic deposits. The bank has seen a 50% growth in its NRE deposits in the first quarter of FY14 when compared to the same period last year. "A higher NRE rate than the domestic term rate would give a further boost to the remittances business," said A Surendran, head, retail and international banking, Federal Bank.
Bankers said that a hike in NRE rates of long-term maturities is a more cost-effective way of raising resources from abroad when compared to NRI bonds as the latter would entail additional costs like having road shows overseas. In the past, the government has relied on State Bank of India to raise funds from NRIs through the Resurgent India Bonds in 1998 and India Millennium Deposits in 2001.
South Indian Bank has also hiked its NRE max deposit rate (three to five years) to 9.5% while interest rate on domestic term deposit of three and up to 10 years fetches 8.75%. "The government wants remittances from abroad to help ease the CAD (current account deficit situation)," Abraham Thariyan, executive director, South Indian Bank, said.
IDBI Bank has revised its NRE deposit rates for tenor of more than three years and up to seven years by 25 basis points to 50 basis points. "The bank is now offering a peak interest rate of 9.5% on NRE deposits as a result of the revision," it said in a release. Similarly, Axis Bank is also offering 9.5% interest on NRE deposits in the three- to five-year maturity from 8.75% earlier.
According to bankers, NRE deposits and domestic term deposits for long have been mirror images in terms of their usage and there has never been a major exodus in the latter in times of uncertainty. "If you observer the historical pattern in usage of domestic and NRE deposits, there has not been much difference be it in closing, renewal or even premature withdrawals in the two deposit categories," N Kamakodi, CEO and MD, City Union Bank, said.
Besides rupee deposits, banks are also offering higher returns on their foreign currency non-resident (B) deposits after RBI raised the ceiling on these deposits. RBI has allowed banks to offer 100 basis points higher rates by increasing the ceiling to 400 basis points over Libor from 300 basis points earlier. Libor is the London Interbank Offered rate, the primary benchmark for short-term interest rates around the globe.
Courtesy: TOI
