Vishwanath Nair & Shashidhar KJ
Even though the Reserve Bank of India (RBI) has eased guidelines for interest rates offered on deposits for non-resident Indians (NRI), banks doubt if the steps would attract more customers. This is reflected in the recent rate movements by bankers, where a number of banks have only revised the interest rate on Foreign currency non-resident (FCNR) deposits, not tinkering much with their non-resident (external) (NRE) rupee deposits.
On Monday, Dena Bank and Central Bank of India each had revised the interest rates offered on their FCNR products. Dena Bank raised the interest rate on deposits with maturities between three and five years by 100 basis points (bps), with effect from Monday. Punjab National Bank too, has raised FCNR rates in response to RBI’s moves. Vijaya Bank raised deposit rates on NRE deposits by 5 bps to 9%, with effect from August 15.
Last week, RBI announced it had lifted the ceiling on NRE deposits of three years and above, allowing banks to offer interest rates which are higher than the comparable domestic-term deposits. RBI also increased the mark up on Foreign currency non-resident (FCNR) deposits with duration between three and five years by 100 basis points (bps).
Apart from these measures, the apex bank announced these categories of deposits are exempt from cash reserve ratio and statutory liquidity ratio requirements, making them more attractive for banks to raise
According to banks, non-resident customers are more interested in parking funds in deposits upto 1 year compared with long-term deposits as that helps them to benefit from currency movements. Nearly 65-70% of NRE term deposits are made in the one-year bucket for the banking system, according to A Surendran, head retail banking and international banking, Federal Bank. The Kerala-based Federal Bank is one of the most active banks in the NRI deposit space. Surendran suggested that for the banking system too, about 65-70% of NRE deposits come in the 1 year bucket.
In the quarter ended June 30, Federal Bank reported a 51% year-on-year rise in the NRE deposits to R15,108 crore while NRI deposits clocked a growth of 32% year-on-year to R17,000 crore over the same period.
For India’s largest bank, State Bank of India, outstanding NRI deposits as on June 30 stood at R84,943 crore, of which R54,912 crore came through the non-resident external (NRE) rupee account route, according to Dipankar Purkayastha, general manager (personal banking business unit).
?If there is a rate increase by a large number of banks, it will surely attract more deposits from NRI customers,” Purkayastha said.
Other banks feel the FCNR product which has always had a steady stream of customers could garner further deposits due to the higher rates. “The 100 bps increase in the three to five year FCNR products seems like something that will attract higher flows from customers. There is a set of customers for this product,” says HSU Kamath, chairman and managing director, Vijaya Bank.
SBI’s assets and liabilities committee (Alco) would meet in a few days to take a call on the deposit rates. Similarly, Andhra Bank is likely decide on a rate hike on these deposit products soon, said BA Prabhakar, chairman and managing director.
“We feel it is a very good move. Since they are exempt from CRR and SLR requirements, it will be very beneficial for banks. Customers with a long term view will benefit,” Prabhakar said.
