NRE deposits still get high rates

By SiliconIndia   |   Friday, 16 July 2004, 07:00 Hrs
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MUMBAI: Faced with burgeoning foreign exchange reserves, the Reserve Bank has been trying its best to discourage non-resident Indian inflows into the country, according to a daily. In April, the central bank put a cap on nonresident external (NRE) term deposit rates by linking interest rates to LIBOR (London Inter Bank Offered Rate). But, the daily said, the NRE deposit rates offered by the domestic banks say a different story.

For instance, State Bank of India and HDFC Bank are offering 3.80% interest on 3-year NRE term deposits, while ICICI Bank is offering 3.73% for the same maturity. Similarly, SBI and HDFC Bank are offering 2.50% for a 1-2 years, while Bank of Rajasthan is offering 2.46%. How is this possible?

“Some bankers are taking a higher LIBOR base to offer higher returns. This way they (bankers) are quietly circumventing RBI guidelines. In fact, a few of our branches pointed out this discrepancy where some banks are offering higher interest rates than us,” said a banker on condition on anonymity.

“It could also be a case of better treasury management. One can use a higher base if one can profitably deploy such resources,” says a private sector bank treasury manager.

Faced with rising forex inflows, Finance Minister P. Chidambaram has now swung into action by proposing a tax on NRE interest income in his 2004-05 budget. Currently , the entire principal and interest are exempt from tax. “The FM’s proposal will now shut down the NRE deposit window,” said another banker. Meanwhile, NRE savings deposit rates are offering more or less the same interest rate of 1.90% per annum for the quarter ending Sept 2004.

(Hindustan Times)

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