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ICICI Bank shakes home-loan foundations with rate cut

Mumbai, Jan. 16: ICICI Bank today set the cat among the pigeons by cutting interest rates on its floating home loan products by 50 basis points and on fixed-rate loans by 125-150 basis points. Five-year fixed loans will now come for 8.75 per cent — the best deal so far.

Officials said the new rates offered are one of the lowest in the industry and could spur a sharp rise in housing finance disbursals in the current financial year.

Industry watchers point out that the aggressive tone set by the largest private sector bank could prod others into reducing their interest rates in the days to come.

The reduction takes effect from Friday. On adjustable rate home loans from ICICI Bank, a 50 basis point reduction has been made across the maturity ladder.

At the same time, a reduction of 50 basis points has been made in the ICICI Home prime-lending rate (PLR). On fixed loans, interest has been cut by 1.25 to 1.5 per cent to bring them in line with adjustable rate loans.

Fixed-interest loans for 16-20 years will now carry a rate of 10.25 per cent as against 11.75 per cent earlier. These rates would also be available on balance transfer schemes in force, the bank said in a press release.

On its adjustable rate home loans, the rate of interest for loans between 6-10 years has been brought down to 9.25 per cent from 9.75 per cent, while it stands at 9.75 per (10.25 per cent) cent for 11-15 years and 16-20 years.

On fixed loans, the interest has been brought down by 1.25 to 1.5 per cent across different maturities to bring them in line with the current adjustable rate home loans.

Hence fixed loans between 6-10 years are now at 9.25 per cent from 10.50 per cent and that between 11-15 and 16-20 years at 9.75 per cent from 11 per cent. Similarly, the new rate for loans between 21-30 years have been slashed to 10.25 per cent from 11.75 per cent.

“With this reduction, we are passing on the benefit of reduced cost of funds to our customers. By bringing the rates on fixed rate loans at par with current adjustable rates, we will be able to attract new clients for fixed-rate loans,” said a senior ICICI Bank official in charge of retail lending.

The rates, he said, will also be available on balance transfer schemes already on offer. For a customer who has taken a home loan of Rs 10 lakh for 20 years at 12.50 per cent in 2001, this can translate into a saving of Rs 7 lakh.

While the housing finance market has been growing at a rate of 30-35 per cent, the bank is looking at a growth rate in excess of 300 per cent. Last financial year, it reported total disbursals of Rs 2,230 crore, ICICI Home Finance chief operating officer Rajiv Sabharwal said.

Deposits to fetch less

The bank will cut interest rate on deposits soon so that it can lend money at cheaper rates. “The interest rate scenario remains soft and we will cut the interest rate on deposits in next few days,” ICICI Bank managing director and chief executive K. V. Kamath said at a seminar. He declined to give details on the size of the cut.

Asked about extending the cut to other retail loans, Kamath said the bank was reviewing the rates on risk and other parameters. ICICI bank has a 25-30 per cent share of the country’s home-loan market and retail finance would be major driver of the growth.

He said the bank has approached authorities in four countries, including Canada and China, to set up shop there. “We have talked approached regulators to open subsidiaries or representative offices in UK and UAE.”

The bank will focus on overseas companies with a large business presence in India, he said. “It will also extend services to NRIs but this will not be the only area.”

On the pick-up in industrial growth and credit, Kamath said: “We have seen some companies making plans for new capacities in the last two months. However, the picture will become clear in the next three months. The economy was expected to grow at rates in excess of six per cent of GDP.

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