MUMBAI, February 4: The Bank of America (BankAm) and the Bank of Nova Scotia on Wednesday slashed their short-term deposit rates by a whopping 300-350 basis points, signalling a return of liquidity into the system.This is the first round of a downward revision of deposit rates by the banks.
The short-term rates were jacked up last month after the Reserve Bank of India's (RBI's) announcement of a series of measures, which sucked out liquidity from the system. The RBI's objective was to harden domestic interest rates to curb speculation in the foreign exchange market.
"The industry will now witness a fierce deposit-rate war. Some of the banks, particularly the foreign banks, will be forced to pare their deposit rates to protect their spreads," said a senior banker. While the high-profile BankAm is now offering 12.5 per cent for deposits maturing between 30 and 45 days, the Bank of Nova Scotia's offering it 50 basis points higher at 13 per cent for deposits maturing between 30 and 90 days. The new ratesfor BankAm are applicable from February 4. For Nova Scotia, they are effective from Wednesday, sources in the bank said.
The American Express Bank is offering 11 per cent for maturities between 30 and 90 days and has pegged deposits maturing between 91 days and one year at 10 per cent. HongkongBank's deposits maturing between 30 and 90 days are pegged at 12 per cent, while the Citibank is offering at 10.5 per cent.
Sources say with overnight call rates coming down, the foreign banks, which were offering among the highest rates for term-deposits, have been forced to roll them back.
"The deposit rates were hiked because we needed funds to meet our treasury operations after rates peaked at 140 per cent. Now, after the call rates have stabilised at 10-15 per cent, they can be brought down to reasonably low levels," a retail-banking source with a foreign bank said. Nova Scotia has left long-term interest rates untouched. It is offering 11 per cent for deposits maturing between 91 days and one year, and 11.5per cent for deposits maturing between one year and five years.
BankAm has brought down the rates for deposits maturing between 46 and 90 days to 12 per cent from 15 per cent. It will continue to offer 10.5 per cent for maturities between 91 and 364 days, 11.5 per cent for deposits maturing between one year and two years and 12 per cent for maturities between two years and six years, retail-banking sources in Bank Am said.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
