HDFC Bank raises the bar, offers 9% interest on NRE deposits

HDFC Bank, India’s No. 2 private lender, will raise interest rates on non-resident savings deposits to 9 percent from 3.82 percent from Friday, taking advantage of recent deregulation to attract dollars as the rupee hits record lows.

The Reserve Bank of India deregulated interest rates on non-resident external (NRE) rupee deposits and ordinary non-resident accounts last Friday to provide greater flexibility to banks to attract dollars.

HDFC will pay 9 percent interest on deposits of Rs 1 crore and above, maturing in 1-2 years, while deposits of Rs50 lakh to Rs 1 crore will earn 8.5 percent, said Abhi Aima, group head of equities and private banking.

Foreigners have been fleeing Indian assets as India’s economic prospects cool, sending the rupee to record lows.

So far this year, foreign investors have been net sellers of $352.5 million of Indian shares against a record inflow of more than $29 billion in 2010.

Earlier on Tuesday, smaller private lender Yes Bank raised its NRE deposit rate by 200 basis points to 6 percent for deposits of up to Rs 100,000. For balances above Rs 100,000 , it raised the rate by 300 basis points to 7 percent.

Yes Bank also raised its domestic savings deposit rates to 7 percent from 6 percent, becoming the first bank to raise rates twice this year to help build up its retail business.

Another private lender, Dhanlaxmi Bank , also said on Thursday it would raise deposit rates for NRE accounts to 8 percent for 1-3 years and 7.75 percent for 3-10 years.