More banks expected to follow suit

The Reserve Bank of India's move to deregulate interest rates on non-resident external (NRE) rupee deposits and ordinary non-resident accounts has encouraged banks to attract dollars. Many banks have announced a steep increase in interest rates on fixed deposits held by non-resident Indians

Private lender Yes Bank has increased the interest rates on fixed deposits held by non-resident Indians (NRIs) to 9.6 per cent from 3.82 per cent.

The new rate is being offered on term deposits of 15 months 15 days to 16 months. The bank has also raised savings bank rate by 200 basis points to 6 per cent.

According to Rana Kapoor, CEO, the higher rates, coupled with the dollar's recent rise against the rupee, are sure to encourage foreign exchange inflows.

Lakshmi Vilas Bank for its part has revised the rate of interest for NRE term deposits with effect from December 22. Deposits under the maturity slab of one year to below two years will in fact attract 10 per cent from 3.82 per cent previously. Deposits of 2 years to below three years will fetch 8 per cent against 3.51 per cent and three years and above 7 per cent against 3.64 per cent.

IndusInd Bank has increased the interest 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. More banks are expected to announce a rise in interest rate in the coming days. It remains to be seen how the net interest margin of banks will be affected by these revisions.