Sector Update: Banking

Sector Update: Banking

Following the RBI’s decision to raise the interest rate ceiling on foreign currency non-resident (FCNR) deposits by 75bp to London Inter Bank Offered Rate (Libor) plus by 100 points, many commercial banks raised the interest rate on NRI deposits by 75bp to attract foreign currency resources to the country and 75bp on non-resident (external) rupee accounts (NRE) to Libor plus 175bp.

ICICI Bank revised interest rates on NRE fixed deposit and FCNR deposits with effect from 18 November, 2008. The one-year NRE deposit rate has been increased by 75bp to 4.92%.

For FCNR (B) deposits denominated in the US dollar, the interest rate for one year has been increased by 75bp to 4.17% paid annually whereas for FCNR (B) deposits denominated in the British pound, the rate has been increased to 7.01%.

State Bank of India also hiked the interest rates on its foreign currency and rupee deposits by non-residents w.e.f 17 November, 2008.

For NRE deposits for the duration of one year to less than two years, the rate has been increased to 4.92% from 4.17%. For FCNR (B) dollar denominated deposits, the interest rate have been hiked to 4.17% from 3.42% and for two years and above but less than three years, the new rate is 3.66% from 2.91%.

Punjab National Bank has also revised the rate while HDFC Bank is expected to revise its rates. HDFC Bank and Axis Bank continue to be our top picks in the sector. Within PSU Banks, we prefer Punjab National Bank, Union Bank of India and Corporation Bank.