NRE deposit rates jump1 min read . Updated: 22 Dec 2011, 09:14 PM IST
NRE deposit rates jump
NRE deposit rates jump
The central bank’s move to free interest rates on non-resident Indian accounts to help attract foreign exchange and stem the rupee’s decline has led to a sharp increase in such rates, with the country’s second-largest private sector lender, HDFC Bank Ltd, among the first to take advantage of the move.
The bank will now offer 9% on deposits of ₹ 1 crore of one-two years, 8.5% for two-three years and 8.25% for three-five years.
HDFC Bank, which currently has an NRE deposit portfolio of ₹ 7,000 crore, wants to increase its share of this market by offering higher rates, said Abhay Aima, group head, equities and private banking at HDFC Bank.
“Despite having the brand, the bank has not yet been able to get the desired chunk of NRE deposit market. We do expect this situation to change by offering higher rates," Aima said.
Smaller banks such as Lakshmi Vilas Bank Ltd and Federal Bank Ltd have already raised rates on such deposits following the RBI move. Lakshmi Vilas is offering 10% on one-year deposits against 3.82% earlier, Karnataka Bank Ltd is offering 9.75%, while Kerala-based Federal Bank is offering 6.5%.
Dhanlaxmi Bank Ltd also increased its interest rates on NRE deposits starting Monday. For deposits with a maturity period of one to three years, the bank will now offer an interest rate of 8%. The interest rate for deposits of 3-10 years has been raised to 7.75%, the bank said.
Aima said, however, that the 9% offer is unlikely to be in place for long as RBI regulations do not allow banks to offer rates on NRE deposits higher than those offered on domestic term deposits.
“Over the next three months, I expect domestic rates to come down and then we’ll have to bring down the NRE rates proportionally," Aima said.
Last week, RBI deregulated rates on NRE and ordinary non-resident accounts in a move to increase dollar flows into the country and support a depreciating rupee.
NRE deposit accounts are ones where money comes from abroad. Until now, the rates have been regulated and benchmarked to the London interbank offered rate (Libor).
Last month, RBI lifted the cap on them to Libor plus 275 basis points from Libor plus 175 to make the deposits more attractive. One basis point is one-hundredth of a percentage point.