This refers to the news report on the huge increase in interest rates on non-resident (external) rupee (NRE) deposits by a number of banks after the Reserve Bank of India lifted the cap on these deposits (“SBI, BoB set to raise NRE deposit rates,” December 24). The move is as an attempt to attract substantial fresh deposits from non-residential Indians (NRIs). However, it’s noteworthy that NRIs have been bringing their surplus deposits to India despite the hitherto low interest rates being offered by Indian banks since these were higher than what they would get in their country of domicile. Therefore, it is debatable whether the increase would impact the NRI-deposits kitty in a significant manner. Banks with a large proportion of NRE deposits, particularly the Kerala-based ones, are likely to be affected more in this rate war. The lead taken by a handful of banks in raising the NRE deposits interest rates will compel other banks to follow. One can, therefore, expect to see the impact on the bankex index in the coming days.
S Ravindranath Coimbatore
Letters can be mailed, faxed or e-mailed to:
The Editor, Business Standard
Nehru House, 4 Bahadur Shah Zafar Marg
New Delhi 110 002
Fax: (011) 23720201
E-mail: letters@bsmail.in
All letters must have a postal address and telephone number