Mid-sized private banks are looking to strengthen their non-resident deposit bases by offering higher rates. This follows the Reserve Bank of India (RBI) deregulating interest rates on these deposits.

Federal Bank and South Indian Bank have already announced 268-324 basis points rises in their non-resident (external) rupee (NRE) term deposits, and many other private banks are expected to follow.

Kochi-based Federal Bank said it would offer interest of 6.5 per cent on NRE term deposits with a one-year maturity period, compared with 3.82 per cent earlier. Its Thrissur-based rival, South Indian Bank, has increased NRE term deposit rates for maturities ranging between one and ten years to 6.75 per cent. Earlier, the bank offered 3.51-3.82 per cent on these deposits across maturities.

N Kamakodi, managing director and chief executive, City Union Bank, said, "We will be increasing our rates in a week's time. The rates would be closer to domestic deposit rates. The rise is most likely to happen in a one-year bracket." The Tamil Nadu-based private lender has around Rs 200 crore deposits in the non-resident category.

On Friday, RBI had deregulated interest rates that Indian banks pay on NRE savings, term deposits and ordinary non-resident (NRO) savings accounts. The central bank had said rates on non-resident deposits could not be higher than the rates they paid on domestic term deposits of similar maturities.