Non Resident Indians (NRIs), including many from Dakshina Kannada and Udupi region, may now consider investing in term deposits in domestic banks as banks had announced an increase in the rate of interest offered on specific non-resident external (NRE) rupee term deposits.

The interest rate has been increased from a minimum of 3 per cent to a maximum of 9.75 per cent for various maturity bands. In the past fortnight, the State Bank of India (SBI), the State Bank of Mysore (SBM), Canara Bank, YES Bank, and the Indian Bank had announced the increase in the rates.

At least one more bank is likely to increase the rate of interest it offers. The interest earned on NRE accounts in the bank here was not taxed and the money could be repatriated abroad. While no bank has quantified the amount as numbers are yet to be collected, several bank managers said that it would increase more investments in NRE deposits. Sadashiv, Assistant General Manager, State Bank of India, Mangalore, with the increase the interest rate for NRE deposits was on par with the interest rate given on resident deposits.

Chandrashekhar Kamath, Senior Manager, State Bank of Mysore, said NRIs investing in gold and real estate would now look at investing in term deposits.

Sources in Karnataka Bank said the response to the increased rate of interest had been “good as hitherto, the rate of interest NRIs received was lower than 4 per cent.”

The State Bank of Mysore had increased the rate of interest from 3.82 per cent to 9.5 per cent for NRE term deposits for a maturity band of above 1 year but less than 2 years.

Canara Bank has revised its interest rates on NRE deposits with effect from Thursday. The bank is offering an interest rate of 9.25 per cent for a minimum maturity period of 1 year to a maximum of 5 years maturity, and 9 per cent for a minimum maturity period of 5 years to a maximum of 10 years.

Corporation Bank is likely to increase the rate of interest on NRE deposits, said B.R. Bhat, General Manager of the bank. The bank’s asset liability committee (ALCO) would meet on Friday to decide on the issue. “We have to increase…now, it is the bare minimum (3 to 4 per cent),” he said.

Sources in banks said the rate of interest on NRE deposits had been taken to encourage remittances so that funds flow into India to meet the requirements of the country. Earlier, the Reserve Bank of India (RBI) would tell banks how much rate of interest to quote. Now, the banks could pay more than the domestic rate. Another reason was fall in the value of the rupee in the foreign exchange market. At present, the exchange rate was Rs. 56 for one U.S. dollar. This was encouraging Indians working in West Asia to send more money home. This could be retained in India if a higher interest rate was given, they said.

Karnataka Bank Ltd has increased interest rates on NRE deposits with effect from December 19. A bank release said the bank had increased the interest rates on NRE deposits from 3.82 per cent to 9.75 per cent (for an investment period of one year to less than two years); from 3.51 per cent to 9.50 per cent (for a period of two years to less than three years); and from 3.64 per cent to 9.50 per cent for a period of 3 to 5 years. The rates applied to all fresh NRE term deposits and renewals of maturing deposits from December 19.

source: http://www.TheHindu.com / News> Cities > Mangalore / by Reunuka Phadnis / Mangalore, December 29th, 2011