The country’s largest lender State Bank of India (SBI) and a few other banks, including Kotak Mahindra Bank, on Tuesday announced a sharp hike in interest rates offered on non-resident external (NRE) deposits.

SBI raised the interest rates on fixed deposits by non-resident Indians of less than Rs 1 crore with a maturity of one to two years to 9.25 percent, as against 3.82 percent earlier.

However, NRE term deposits above Rs 1 crore and of the same maturity will attract 9 percent interest with effect from 1st January 2012, SBI said in a statement on Tuesday.

The statement further said term deposits between 2-3 years and 3-5 years’ tenure will also earn 9.25 percent interest.

The revised deposit rates will apply only to fresh deposits and on renewal of maturing deposits, it said.

No interest is payable if the deposit is withdrawn before one year, it said, adding that in other cases of premature withdrawal, the interest paid shall be 0.5 percent below the rate applicable for the period the deposit has remained with the bank.

Banks are offering such high rates because of the sharp depreciation of the rupee in the past few months.

There has been a considerable spike in inflows since the rupee fall, one analyst said, opining that such high rates will not last long.

Mumbai-based Kotak Mahindra Bank has also hiked interest rates on NRE deposits with a maturity of one to two years to 9.25 percent with effect from Tuesday (27/12/11), while the rate for deposits of 2-3 years’ tenure will be 9 percent, the bank said in a release.

Another private sector lender, Federal Bank also revised the interest rate on NRE deposits of select maturities.

NRE deposits with a maturity of less than year will earn 8.25 percent to 9.10 percent interest at the bank, depending on the amount.