Bankers want Mint Road to unshackle NRI deposit rates

Bankers today urged the Reserve Bank of India (RBI) to deregulate interest rates on NRI deposits for improving liquidity conditions.

The bankers, under the banner of Indian Banks' Association (IBA), made a presentation to the RBI governor, Y V Reddy, on the liquidity conditions in the banking system and high credit offtake raising the incremental credit-deposit ratio to over 100 per cent.

"With incremental C-D ratio at 100 per cent, resources is an issue," said A K Purwar, chairman of State Bank of India and also Indian Banks' Association, after meeting RBI governor as part of the pre-annual policy consultations by the central bank.

"There is a significant shift in deposit mobilisation pattern from a mix of retail-and-current deposits to raising bulk deposits. Mutual funds have become strong competitors to banks for attracting funds. We discussed how deposits could be made more attractive to investors," said H N Sinor, chief executive of IBA.

Bankers made a strong pitch for deregulation of interest rates on NRI deposits, as the current cap linked to London Inter Bank offered rate (Libor) has become restrictive with interest rates globally on the rise.

Currency conversion risks have also made NRI deposits less attractive. Deregulation of interest on NRI deposits would help attract funds and help overcome liquidity tightness.

"Once the infrastructure projects take off, there would be strong demand for resources, which could put further pressure on banks," Sinor said.

The issue of interest rate, farm sector lending, infrastructure, hybrid capital instruments and Basel II implementation also came for discussion, Sinor said.