RBI deregulate the NRE deposit rates : banks offering interest rates up to 10%
The Reserve Bank of India (RBI) has deregulated interest rates on non-resident external (NRE) rupee deposits and ordinary non-resident (NRO) accounts on Friday, to provide banks better flexibility to mobilize such deposits in view of the prevailing market conditions.
Banks have been given the liberty to decide interest rates on both savings deposits and term deposits, having a maturity of one year and above, under non-resident external rupee deposit accounts and savings deposits under ordinary non-resident accounts with immediate effect, it said.
The Reserve Bank of India’s move to free interest rates on Non-Resident Deposits has triggered a rate war among banks. Laxmi Vilas Bank is offering 10% on one-year deposits as against 3.82 earlier. Mangalore-based Karnataka Bank which has hiked one-year returns to 9.75%.
Kerala-based Federal Bank was the first to respond hiking rates on one-year NRE deposits to 6.5% from 3.82%. Meanwhile another Kerala-based lender South Indian Bank has said that it would offer non-residents 6.75% for deposits up to one year and above.
Federal Bank which has one of the largest shares of non-resident deposits among banks in India has said that it has seen a surge in deposits after interest rates rose sharply during the current fiscal. The bank’s NRI deposits had risen by as much as 40%.
Late evening on Friday, RBI said that it has deregulated interest rates on non-resident (external) rupee (NRE) deposits and ordinary non-resident (NRO) accounts. RBI said that it has decided to deregulate interest rate on NRI deposits to provide flexibility to banks to raise deposits. “Banks are free to determine their interest rates on both savings deposits and term deposits of maturity of one year and above under NRE deposit accounts and savings deposits under NRO accounts. However, interest rates offered by banks on NRE and NRO deposits cannot be higher than those offered by them on comparable domestic rupee deposits,” RBI said.
Among other lenders Dhanlaxmi Bank said that it was reviewing its interest rates on NRI deposits but has not yet taken a decision. DCB Bank’s Murali Natrajan said that his bank was also reviewing rates on NRE deposits.