Mumbai, Feb. 8: ICICI Bank, the country’s largest private sector bank, today indicated that interest on housing loans may become dearer by half a percentage point before the end of this fiscal because of tight liquidity conditions and a rise in cost of funds.
Hinting that the bank will raise not only housing, but also interest rates on auto loans by 25-50 basis points, V. Vaidyanathan, who heads ICICI Bank’s retail operations, explained there is a pressure on liquidity. “We are evaluating the cost of funds,” he added.
After the Reserve Bank of India (RBI) raised the reverse and repo rates by 25 basis points in the recent review of the monetary policy, the private sector banks have rushed to raise interest rates on housing loans.
Nationalised banks, however, have desisted from this move so far.
The Housing Development Finance Corporation (HDFC ) was the first to raise rates by 50 basis points with effect from February 1.
HDFC had said it was forced to increase the rates to maintain the margin between home lending rates and deposit rates.
HDFC was followed by IDBI Bank and LIC Housing Finance.
Announcing the hike, IDBI chairman V.P. Shetty had said this was effected following the increase in deposit rates and to reduce the gap in yield and cost.
“It is a realignment done due to the rising cost of deposits,” he had said, admitting pressure on net interest margin.
Bank of Baroda (BoB) has indicated it would not be raising interest rates despite hiking deposit rates.
The largest commercial bank, the State Bank, has also said it would not raise interest rates for now.
ICICI Bank now has the largest retail asset portfolio among Indian banks and finance companies. The bank’s total retail disbursements for the nine-month period was Rs 43,200 crore, including home loan disbursements of Rs 17,600 crore.
Retail assets now constitute 64 per cent of the bank’s advances and 62 per cent of customer assets. A fixed-rate home loan of HDFC will bear an interest between 10.5-9.25 per cent depending on the loan amount, while the floating rate will vary between 8.75-8 per cent.
