Upward spiral

Mumbai, Feb. 23: ICICI Bank today raised its lending and deposit rates by 50 basis points. The revised lending rates will be applicable only to retail loans, and existing home loan borrowers will remain unaffected.

Bank officials said the hike was in response to the half-a-percentage point increase in cash reserve ratio (CRR) announced by the Reserve Bank of India (RBI) on February 13. The RBI move led to nationalised banks revising their lending rates upwards. However, these banks had left home loan rates unchanged.

Confirming that today’s hike will be limited to retail loans, a bank official said it would only be applicable to new loans. The floating rate for home loans has been increased to 11 per cent from the earlier 10.5 per cent, while the fixed rate has been upped to 13 per cent from 12.5 per cent. Likewise, on the deposit front, the bank raised interest rates by 50 basis points. The new interest rates for deposits of 390 days will be 9 per cent from the earlier 8.25 per cent, while for 590 days, there has been a 1 percentage point increase from 8.5 per cent to 9.5 per cent. For 890-day deposits, the rate has been increased by 50 basis points to 9.5 per cent.

Analysts added that ICICI Bank had effected the increase to protect its spreads, which was under 3 per cent for the quarter ended December 31, 2006. The bank has increased lending rates by over 200 basis points since the last calendar year and it is expected that this could result in credit growth moderating to a little over 20 per cent over the next couple of months.

On February 6, ICICI Bank revised its floating reference rate (FRR), which is the benchmark rate for all consumer loans, including home loans, to 11.75 per cent from 10.75 per cent. In December 2006, the bank had raised the FRR by half-a-percentage point.

After the revision, floating rate loans of ICICI Bank increased to 10.50-10.75 per cent from the present band of 9.50-9.75 per cent, while fixed loans of a 20-year maturity stood at 12.5 per cent from 11.5 per cent earlier. The new rates came into effect from February 9. The rate hike was in response to the central bank revising the repo rate by 25 basis points to 7.50 per cent following which cost of funds went up.

Housing Development Finance Corporation (HDFC), another key player in the housing finance market, is shortly expected to increase interest rates.