Banks eye NRI deposits to boost biz

With deposit rates expected to dive after the RBI's move to slash key rates, bankers are banking on NRIs to supercharge their lockers. Moneymen say Wednesday's cut in repo rate and reverse repo rate would result in lesser movement of funds from NRE and FCNR (B) to NRO (non-resident ordinary rupee account) accounts.
The interest earned from NRO, which can be maintained jointly with resident Indians, is liable to tax in India. "The propensity to shift from NRE and FCNR (B) to NRO will reduce now as the interest rate arbitarage would be narrowed down," says M S Sundara Rajan, CMD ofIndian Bank.
However, the banking meltdown in the US and Europe will force many NRIs to look homewards to park their money. "The Indian banking and financial system is sound and that is prompting many NRIs to remit funds to India," says Rajan. The bank's FCNR(B) (foreign currency non-resident account bank scheme) and NRE (non-resident external rupee account) portfolio currently stands at Rs 3,000 crore. Rajan says that the bank has seen an increase in NRI deposits in the last couple of months. Adds Y L Madan, executive director of Indian Overseas Bank, "Worldover, fixed deposit rates offered by banks are pretty low. Our bank has seen a growth in NRI remittances since the advent of the slowdown."
Some banks have already effected a rise in their FCNR(B) and NRE deposit rates and others are expected to follow suit. While banks periodically review their FCNR(B) and NRE rates in accordance with the RBI guidelines, a hike in interest rate in such deposits assumes importance in the current scenario. "These deposits are normally of longer duration (upwards of one year) compared with domestic deposits like fixed deposits (upwards of 7 days). Given the current market scenario, our bank is in favour of mobilising long duration and low cost deposits," says P Y Nagar, general manager of Union Bank of India. Interest rates on the Union Bank of India's FCNR (B) deposits for five years now stand at 3.66% up from 3.45% earlier.

Similarly, Indian Bank recently hiked interest rates on its FCNR (B) and NRE deposits. FCNR (B) deposits of five years duration will now carry an interest rate of 3.66% up from 3.45% before the revision. Indian Overseas Bank is also expected to announce a hike in its FCNR (B) and NRE deposits after its assets liabilities committee meeting which is expected to be held this weekend.

Source:timesofindia