ICICI Bank and HDFC Bank, two of the largest private sector banks have both hiked a section of their FCNR (B) rates noting the changed scenario. With overseas rates also higher more banks could join in hiking rates in this scheme, people familiar with banks’ plans said.
While ICICI has hiked the rate on its FCNR (B) deposits for $5 million or above to 6.25% from 6%, HDFC has raised rate uniformly on its three- to five-year (FCNR) (B) dollar deposits by 25 basis points basis points to 6.25% from 6%. A senior bank executive said that the higher rates are a function of the market and competition. “The tweaks are required to keep rates competitive which is what large banks have done. Also the fact is overseas rates have gone up and borrowing is more expensive so banks have to adjust their rates accordingly,” said a senior private sector bank executive. Indeed, global benchmark rates have increased since the RBI operationalised the scheme on June 8. For example HDFC Bank raised $750 million by selling five year bonds to overseas investors on June 16.
The bond was priced at 90 basis points above the five-year US treasury, the tightest spread over the US benchmark for any private sector bank in India.
However, since then both the spread as well as US yields have tightened with the five year US treasury now trading at 4.45% up from 4.15% on June 16. Similarly the yield on the benchmark 10 year US security has increased to 4.74% from 4.48% on June 16.
Bankers said the spreads for Indian issuers also has increased. “There are two things playing out. One is the demand and supply of money in the loan market and another premium demand by bond investors. Money is available but Indian banks have to pay a higher rate and they will have to make up for it by tweaking their offering. All this will have to be done soonest since this window closes on September 30,” said a foreign bank executive.
Banks are also paying more for dollar loans as overseas lenders charge a premium noting global volatilities and large demand from India.
