| Leading the queue
Mumbai, Feb. 13: ICICI Bank, the country’s second largest bank, today raised its benchmark prime lending rate (BPLR) by 50 basis points to 11.75 per cent.
The move is the first indication of a hardening of interest rates for companies. Earlier, some banks had winched up rates on retail and home loans.
The BPLR is the reference rate around which most of the lending by banks (other than the categories of loans to individuals) takes place. This is the first time in recent months that a commercial bank is raising its benchmark rate and the development is a strong confirmation of rising interest rates across customer classes.
Interest rates have risen after the Reserve Bank of India (RBI) increased short-term rates by 25 basis points to counter inflationary pressures last month. Since then, it has been retail individuals who were first subjected to higher interest on their housing loans. The first step was taken by Housing Development Finance Corporation (HDFC) which raised interest rates on home loans by half a percentage point.
IDBI Bank and LIC Housing Finance soon followed HDFC’s lead.
Last Saturday, ICICI Bank announced that it will also raise home loan rates by 50 basis points across the board. The new band for floating rate on home loans has been fixed between 7.75 per cent and 8.5 per cent.
In a late evening announcement today, ICICI Bank said the interest on new loans and advances (apart from the categories of loans to individuals and others) has been determined with reference to ICICI Bank’s BPLR (ICICI Bank Benchmark Advance Rate: ‘I-BAR’) with effect from January 1, 2004. The I-BAR will be 11.75 per cent per annum with effect from February 13.
Officials said the 50 basis point increase was prompted by the rising cost of funds. “The BPLR rise will have no impact on retail borrowers where interest rates on housing loans have already been raised,” they added.
ICICI Bank is the only one that has raised interest rates for companies, but other private sector banks may follow suit. However, nationalised banks have so far refrained from even raising interest rates on retail loans. Banking circles do not rule out the possibility of state-owned banks raising rates over the course of next month.