Banks to play safe on forex deposit rates

BoI, SBI see no rationale beyond 25-50 basis points above Libor

Banks are no longer smitten by the rush for foreign currency-denominated deposits. Even before the deposits could catch the fancy of the 'global' Indian, banks have turned cautious in their offerings.

Where Citibank and ICICI Bank offered interest rates of 100-105 basis points above the London inter-bank offer rate, late entrants such as Bank of India (BoI) and State Bank of India (SBI) see no rationale beyond 25-50 basis points above Libor.

BoI chairman and managing director M Venugopalan said the bank proposes to offer an interest rate of 25-50 basis points above Libor on forex deposits of one month to a year.

"When I can raise funds at cheaper rates, why should I offer a higher rate of interest," he added.

Bank of Baroda was the first public sector bank to offer the product. Analysts said many public and foreign banks are in a position to get funding from overseas at Libor-plus 25-50 basis points.

"Offering higher interest rates on forex-denominated deposits is a notional loss for the bank," said a senior analyst with a foreign bank.

"The promo-offer by our bank is intended to popularise the product and acquire customers," said ICICI Bank head of international banking Bhargav Dasgupta.

The private sector bank is offering 105 basis points over Libor on deposits for three months. Subsequent to which, the rates can be revised downwards as volumes build up and growth can only be sustainable at lower rates, he added.

Under BoI's scheme, expected to be introduced this week, deposits of one month to six months will carry a coupon rate of 25 basis points above Libor.

Deposits over six months and up to a year, will carry an interest rate of 50 basis points above the corresponding Libor.

BoI will be the fourth bank to introduce forex-denominated deposit products with the government freeing annual remittance of funds overseas up to $25,000. SBI is equally not keen to offer more than the market rate of interest on forex-denominated deposits.

"We plan to come out with similar products shortly," said SBI chairman A K Purwar, adding that customers would prefer depositing funds with the country's largest public sector bank on the grounds of security more than in terms of the interest component.

After the first rush of banks to offer deposit products for the 'global' Indian, other banks are in no hurry to jump on to the bandwagon.

Said a senior official with a private bank: "Now that the government has allowed Indian residents to invest overseas and there does not seem to be much demand for such products, there is no hurry for us to come out with products at this point of time just for the sake of following others."