The rate-war among banks on the NRE term deposit front seems to have intensified. A look at the newspapers, or a glance at the Web sites of various banks, and you realise that the rate hike effected in the last week of December has most probably been revised yet again, to keep pace with the rates offered by the rest in the industry.
ICICI Bank, India's largest private sector bank, hiked its rates twice within the span of a few days moving its rates for a one-year NRE deposit — first, to 6.5 per cent and then, within two days, to 8.25 per cent, with effect from December 29. Similarly, South Indian Bank (SIB) had, within a week of effecting a hike on its non-resident (external) rupee (NRE) term deposit rate, decided to increase the rate yet again, albeit marginally, from 9.25 per cent to a maximum of 9.50 per cent, from January 2, 2012.
SIB had increased the NRE deposit rate from 6.75 per cent to 9.25 per cent only on December 19. Bank sources said the hike would be in line with the rates offered by the other banks in the industry.
Minimal impact
ICICI and SIB are not alone. Other Kerala-based banks that rely largely on NRI deposits have decided to follow suit. Aluva-headquartered Federal Bank announced an increase in its one-year NRE term deposit rate, offering a maximum of 9.10 per cent. It has now decided to offer 9.5 per cent from January 1.
To beat these two banks, Catholic Syrian Bank has, as a New Year gift to NRIs, decided to offer 10.10 per cent for deposits in the 15 to 24-month time period. Asked how this rate war would impact the bank's profitability, considering that NRE deposits account for nearly 20 per cent of CSB's total deposits, Managing Director and Chief Executive, Mr V. P. Iswardas, said that since this revision was happening only at the very end of the current fiscal, the impact would be minimal. “In any case, the repricing will happen only when the balance in the savings account is invested in a term deposit. There can be some adverse impact next fiscal, but we have to strive to tide over this. For now, we have to offer the best rate for our customers,” he said, justifying the increase.
While the revisions (hike in interest rates) appear to have happened in quick succession, the banks have said that the revised rates would apply only to fresh deposits and on renewal of maturing deposits.
Tamilnad Mercantile Bank and City Union Bank, among others, have upped their rate to 10 per cent for the one-year NRE deposit.
Top officials of these banks concede that the ratio of their NRE deposit base to the total is minimal, often less than 2 per cent. Therefore, the steep revision in the rate would have negligible impact on its cost of funds.
So, why are they looking at raising the rate? “If we do not offer a competitive rate, our existing depositors would move their investment to some other bank,” the Chairman of CUB, Mr Balasubramanian, said