SBI, Dena Bank up interest rates for NRE deposits

State Bank of India on Tuesday hiked interest rates on Non-Resident (External) Rupee term deposits by up to 5.74 percentage points.

Following the revision in NRE deposit rates by India's largest bank, other public sector and private sector banks are expected to follow suit.

Beginning January 1, India's largest bank will pay a uniform 9.25 per cent interest on NRE deposits (below Rs 1 crore) of all maturities. It has also increased the highest tenor for NRE term deposits from 5 years to 10 years.

Currently, retail NRE term deposits in the 1 year to less 2 years maturity bucket fetches 3.82 per cent interest; 2 years to less than 3 years (3.51 per cent); 3 years to less than 5 years and 5 years (3.64 per cent each).

In a statement, the bank said no interest is payable if the deposit is withdrawn before one year. In other cases of premature withdrawal, the interest paid will be 0.5 per cent below the rate applicable for the period the deposit has remained with the bank or 0.5 per cent below the contracted rate, whichever is lower.

Dena Bank too hiked the interest rate on NRE term deposits to 9.60 per cent for one year maturity and 9.25 per cent for maturity period ranging from above 1 year and up to 3 years.

The bank said:-

In terms of returns, NRIs will find NRE deposits beneficial. We plan to double our NRI deposit base to Rs 600 crore by March-end 2012,” said Mr SK Jain, General Manager, Dena Bank. He explained that if a NRI opens an NRE deposit at the current rupee-dollar exchange rate of 53 to the dollar (he gets more rupees for his dollar) and one year down the line, say, the domestic currency appreciates to 49 (he pays less rupees to buy dollars for repatriation) then he gains not only in terms of interest but also in terms of favourable currency movement.

On Monday, Punjab National Bank said it will increase the interest rate on NRE term deposit to 9.25 per cent for period ranging from 1 year to 5 Years with effect from January 1.

NRE Rupee deposits accounted for around 48 per cent (or $25 billion) of the total Non-Resident Indian deposits of $52 billion as on October-end 2011.

NRE account can be in the form of savings, current, recurring or fixed deposit accounts. Such accounts can be opened only by the non-resident himself and not through the holder of the power of attorney.

Balances held in the NRE account are freely repatriable. Further, accrued interest income and balances held in NRE accounts are exempt from Income tax and Wealth tax, respectively.

Loans up to Rs 1 crore can be extended against security of funds held in NRE Account either to the depositors or third parties. Such accounts can be operated through power of attorney in favour of residents for the limited purpose of withdrawal of local payments or remittances through normal banking channels to the account holder himself.