PSBs' turn to unleash forex products now

Public sector banks (PSBs) have joined the bandwagon to offer the global Indian a host of foreign exchange products.

First in the fray has been Bank of Baroda (BoB), which launched its 'resident Indian foreign currency deposit account' offering a six-month forex deposit at 100 basis points above the London inter-bank offer rate (Libor).

Citibank and ICICI Bank have also offered highly attractive rates of 100-105 basis points above Libor, their rates are applicable for deposits of two to three months.

BoB is offering the high interest rate on deposits up to six months. Bank customers will have to take a call on where they see global interest rates moving.

However, an ICICI Bank official countered: "International interest rates are expected to increase. Locking in funds for six months may not necessarily be a plus point even at 100 basis points above Libor."

BoB general manager A S Khurana said that the bank is offering an interest at 100 basis point over the three-month Libor for six months on deposits till March 31, 2004.

"This is applicable on all foreign currencies, but the interest will be reviewed after the initial period depending upon the success," he added.

Some bank officials felt that BoB's offer was not as tempting as it sounded since it would mean the individual's funds would be locked-in for a period of six months.

Since the government announced free annual remittance of $25,000 for Indian residents, a host of banks are in the process of introducing similar offers to capture a potential customer base.

Banks feel confident that even as they are offering higher rates than Libor, "we can easily deploy these funds as many corporates are raising external commercial borrowings at 250 basis points plus Libor," said Khurana, adding that it will facilitate the bank's operations overseas.

Banks offering interest rates on deposits well over Libor is not new to India.

Many banks overseas offer 30-40 basis points over Libor and there are others offering 50 basis points minus Libor. "It all depends on the rating of the bank," said bank officials.