Smaller Indian lenders offered deposit rates above 7 percent on US dollar term deposits as they sought to attract FCNR(B) inflows, following the Reserve Bank of India's decision earlier in June to bear the hedging cost on fresh three- to five-year FCNR(B) deposits, aimed at boosting dollar inflows into the banking system.
RATE COMPETITION INTENSIFIED
Competition among banks for NRI foreign currency deposits intensified, with several lenders sharply raising FCNR(B) rates, according to rates published on their websites. The higher offers followed RBI measures announced on 5 June, including an exemption from CRR and SLR requirements on incremental FCNR(B) deposits mobilised under the scheme and a facility under which the central bank bears the hedging cost on eligible deposits.
The higher rates targeted the FCNR(B) bucket of deposits, which are denominated in foreign currency and sourced from non resident depositors. Smaller and mid-sized lenders led the increases: UCO Bank offered 7.20 percent on five-year deposits, DCB Bank 7.13 percent on three- and five-year deposits, CSB Bank 7.05 percent on five-year deposits and Bandhan Bank a flat 7 percent.
Larger lenders such as HDFC Bank also raised their FCNR(B) rates, to 6 percent on three- to five-year tenors.
EXPECTED INFLOWS
Banking industry participants expect the measures to generate substantial foreign currency inflows. Many reports estimated the RBI's relaxation could attract $35 billion to $40 billion, while brokerage Jefferies estimated potential inflows of $50 billion to $70 billion.
Sources: BusinessLine; Moneycontrol