Banks are trying to outbid each other in the race to garner NRI deposits.
A number of banks have either doubled or trebled the rates they were offering just a few days ago on NRI deposits. This follows the deregulation of rates by the Reserve Bank of India.
This outbidding to contract remittance money is a function of regulatory and governmental ‘overbearing,' says the regional regional head of a leading public sector bank.
He said rates are being kept up, thanks to the tremendous peer pressure to corner the precious funds.
Karnataka Bank has quoted 9 per cent-plus for one year. On Friday, State Bank of Travancore upped the ante by offering over 8 per cent for the same tenor.
IndusInd Bank has increased its rates on NRE deposits to 9.25 per cent from 3.82 per cent. Karur Vysya Bank has increased its rate to 10 per cent.
‘Unbeatable' rates
Officials said, banks are looking to retain the increasingly fleet-footed customers by offering what they think are ‘unbeatable' rates. The remittance inflow would last only for such time as the exchange arbitrage holds.
In Kerala, for instance, the customers do not park money for long, and tend to consume it or spend on real estate. They need compelling logic to stay anchored with their respective banks.
While the Kerala-based banks have just about doubled the rate on the one-year deposit, their counterparts in Tamil Nadu have increased the rate almost in tune with the domestic term deposit rate.
“It's because of competition. The RBI is also encouraging the mop up of such deposits and the increase in the rate offering will not affect our Net Interest Margin as the percentage of NRE deposit to the total is negligible,” says Mr A. K. Jagannathan, Managing Director and CEO of Thoothukudi-headquartered, Tamilnad Mercantile Bank.
Lakshmi Vilas Bank's Managing Director, Mr Somasundaram, said that the volume of NRE deposit to the total was still small and there was, therefore, the need to tap the potential.
Effect on NIM
“Our revised rates for the different time-buckets are almost in tune with the domestic term deposit rate and we do not foresee this hike to have much of an impact on our NIM, which is already under pressure.”
A South Indian Bank spokesperson said that NRE deposits stood at Rs 800 crore out of the total deposits of Rs 33,340 crore. “Since the revised rates would be applicable only for those that come up for renewal and fresh deposits, we do not foresee any pressure on our NIM.”
Bankers, by and large, said that they would be able to maintain the NIM post the revision in the rates. While some banks have already increased the interest rates by 100 to 200 per cent more than the existing rates, more banks are expected to follow suit.