Banks launch rate war on forex deposits

Banks have launched an interest rate war on foreign exchange deposits to attract 'global' Indians. Citibank was first off the blocks with a promotional offer last Thursday, pegging the interest rate on forex deposits at 100 basis points above London inter-bank offer rate (Libor).

ICICI Bank, which introduced similar products in the market today, came out with a more attractive offer at five basis points above that of Citibank.

HSBC proposes to launch more innovative products in the next few days. The rate war is on and the justification in offering better than global rates on similar products is to capture the customer.

Said ICICI Bank head of international banking Bhargav Dasgupta: "The promo-offer is intended to popularise the product and to acquire customer for the new product range."

He said that ICICI Bank's decision to offer five basis points more than the competition stemmed from its ability to better manage costs and thereby pass on the benefits to the customer. HSBC has plans to offer global products to Indian customers.

The bank's CEO Niall Booker said: "We are looking at more innovative products such as derivatives with capital guaranteed. At a time when interest rates are low, investors will allow for some leverage on returns if the capital is guaranteed." The central bank is however, lukewarm on banks offering guaranteed products, said Booker.

ICICI Bank today announced special interest rates for a three-month deposit at 6.3 per cent on Australian dollars, 4.8 per cent on pounds sterling, 3.05 per cent on euro deposits and 2.05 per cent on the greenback. These rates are exactly five basis points higher than those offered by Citibank.

However, the latter's offer is for a period of two months, against ICICI Bank's three month offer. "Effectively looking at the deposit period, the offers are more or less the same," said Dasgupta.

"I do not foresee a rate war. The current rates are just an initial offering meant to excite the domestic market. Rates will come down as volumes build up, and growth will be sustainable at lower rates," said Dasgupta.

Both Citibank and ICICI Bank have hinted at a downward revision in interest rates once volumes pick up.

However, with other foreign banks looking at offering similar products shortly, the first comers might have to extend their offer.

Dasgupta is, however, confident that with ICICI Bank's delivery capability and reach, it will be in a better position to attract deposits.

Basic points

---

• Banks are attracting 'global' Indians by offering competitive rates on forex deposits.
• Citibank was the first to offer such deposits at 100 basis points (bps) above the Libor.
• ICICI Bank came out with a more attractive offer today at 5 bps above that of Citibank.
• HSBC proposes to launch such deposits in the next few days.
• Both Citibank and ICICI Bank have hinted at a downward revision in interest rates once volumes pick up.