Foreign banks ramp up rates on short-term deposits

Foreign banks are raising interest rates on one-year deposits to tide over the funds squeeze caused by a sharp drop in deposits growth.

Most foreign banks have increased their deposit rates for a year to as much as 6 per cent, normally offered on deposits of much longer maturity.

Foreign banks operating in India witnessed a sharp drop in deposits growth to 5.2 per cent in 2004-05 against a 28.6 per cent rise in 2003-04.

Some foreign banks actually saw their deposits shrink by up to 19 per cent. The drastic fall in deposits growth came amid a robust growth of 24.6 per cent in loan assets in 2004-05 against 15.3 per cent in 2003-04.

The increase in deposit rates increases the one-year deposit rate range to a maximum of 6 per cent from 4 per cent to 5.5 per cent. For the banking industry, interest rates range from 5.25 per cent to 6.25 per cent for deposits of over a year.

HSBC has launched its promotional scheme "SmartMoney" which raises its one year deposit rate to 6 per cent from 4.84 per cent. Its counterparts are contemplating a similar increase.

HSBC till now offered 4.84 per cent on deposits of a year and the maximum rate they offered was 5.60 per cent for deposits of four to five years. Under the new scheme, it will offer 6 per cent for the one year deposits and for the first year on deposits of over one year.

"There are innumerable ways of funding advances. These include securitisation of assets, raising finances and mobilising deposits in an effective manner. We also plan to increase our retail asset portfolio, instead of lending excessively to corporate and commercial customers," said Nicholas Winsor, HSBC's head-personal financial services-India.

Another foreign bank official said there was pressure on foreign banks for increasing their fund flow to meet their increasing lending activity.

Foreign banks are increasing their medium-term deposit rates and also looking at an option of infusion of capital from their parent, he said.