Following the deregulation of interest rates on non-resident (external) rupee (NRE) deposits by the Reserve Bank of India, many banks have queued up to increase the interest rates on NRE and NRO (ordinary non-resident) deposits. Some of the banks have gone on to increase the rates by three-fold.
This has, predictably, forced the Reserve Bank to advice banks to exercise caution. In a circular, the apex bank has made it clear that the interest rates offered by banks on NRE and NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits. It has further said that a prior approval of the board/ asset liability management committee may be obtained by banks while fixing interest rates on such deposits. At any point of time, individual banks should offer uniform rate at all their branches, the circular has said. “The revised deposit rates will apply only to fresh deposits and on renewal of maturing deposits. Further, banks should closely monitor their external liability arising out of such deregulation and ensure asset-liability compatibility from systemic risk point of view,'' the circular has said.
Co-operative banks
The RBI has also directed that state co-operative banks (StCBs) and district central co-operative banks (DCCBs) are free to determine their interest rates on NRE and NRO deposits of one year and above with immediate effect.
Many banks have come out with attractive offers in the past few days. These include State Bank of India (SBI), ICICI Bank, Kotak Mahindra Bank and Indian Bank. The aim is to boost foreign currency inflows amid a depreciating rupee.
SBI raised the interest rates on fixed deposits by NRIs of less than Rs. 1 crore with a maturity of one to two years to 9.25 per cent from 3.82 per cent earlier.
Kotak Mahindra Bank has also hiked interest rates on deposits of one to two years to 9.25 per cent. The latest to join the rate hike bandwagon is ICICI Bank, which raised the rates by up to 9.25 per cent. Indian Bank has fixed rates on NRE term deposits. at 9.50 per cent for one year and above up to three years for deposits of less than Rs.15 lakh, and at 9.25 per cent for Rs.15 lakh and above and up to Rs.5 crores.
