ICICI Bank ups loan rates

MUMBAI: ICICI Bank has increased its floating reference rate (FRR) by 1%, with effect from April 1, 2007.

The rate hike is applicable for all loans. “The revised FRR will be 12.75% p.a. as against 11.75% at present,” ICICI Bank said in a press release.

ICICI Bank has also increased its Benchmark Advance Rate (IBAR) by 1%. The revised IBAR will be 15.75% per annum payable monthly as against 14.75% at present.

The bank decided to put pressure on its lending rates after the Reserve Bank of India increased its repo rate, the rate at which banks borrow funds from the RBI, by 25 basis points to 7.75% on Friday.

The central bank also hiked the cash reserve ratio by 50 basis points (in two tranches - April 14 and April 28) to 6.50%, which will suck out Rs 15,500 crore from the banking system.

This is the second 1% rate hike by ICICI this calendar year. The bank had hiked rates in February after the repo rate hike by the RBI in its January policy.  Consumer loans constitute more than half of the ICICI lending portfolio and this move by ICICI is likely to pinch hard.

“As the cost of funding has move up for the bank, we are left with no choice but to increase the rates,” said Rajiv Sabharwal, senior general manager and head of retail assets with ICICI Bank.

Sabharwal said home loan rates have gone up by 250-300 basis points since last year. “We’ll see more interest hikes during the year if inflation keeps rising. However, with home loan rate hikes, we expect a slowdown in demand,” he added. ICICI is the second bank to hike rates after yesterday’s rate hike. Yes Bank hiked its lending rate by 75 bps to 14.75%, almost immediately after the RBI move on Friday. Other banks have also hinted at hiking rates this week.

State Bank of India has also said it will review rates. “There will definitely be an upward pressure on the lending rates. We will be meeting this week to decide on the same,” said an official of State Bank of India.

“There might be a hike by 50 basis points,” he added.

Bank of Baroda and UTI Bank are planning to meet this week to decide on hiking the lending rate.

“If other private banks hike their rates, we might also have to do it. We’ll have to wait and watch until this week,” said an official with Bank of Baroda.

In order to mobilise resources, banks will have to raise their deposit rates too, but ICICI’s Sabharwal said that the bank has not yet decided on raising the deposit rates.

Home loan major HDFC Ltd will decide on hiking the lending rates this week, depending on the market conditions.

... other pvt banks may follow suit

Several other banks, too, are mulling their response even as IndusInd Bank hinted at a possible rise this week.

Two private sector players — Yes Bank and ICICI Bank — hiked their prime lending rates (PLRs) over the weekend in response to RBI’s move to hike repo and cash reserve ratio (CRR) rates on Friday.

“The days of absorbing increasing cost of funds are over. The RBI’s move will definitely impact our cost of funds,” Bhaskar Ghose, managing director, IndusInd, said. The bank will take a “balanced view” so that its business does not get affected by any sharp rise in its lending rates, he said. “Some banks have already hiked their rates. We will see what the larger banks do,” he said, adding “while we have no intention of absorbing the cost of funds, we will take our decision this week.”

“You can certainly expect a minimum 0.25% hike but it could go up to 0.50%.” said Jitender Balakrishnan, deputy managing director, IDBI Bank, while admitting that the cost of funds would go up. “The public sector lender would take a decision on hiking its lending rates only after discussing the matter,” he said. “The hike in repo and CRR will definitely impact our cost of funds. But whether we increase our lending rates or absorb the costs will be decided only at our board meet,” he said. Decisions to hike rates are taken at the board level and IDBI Bank’s board is not scheduled to meet till April-end, he said, indicating that any possibility of an immediate response by the bank was remote.

State Bank of India, the country’s premier lender, too has not yet taken a decision on its lending rates.  “We are still estimating the impact on our balance-sheet,” SBI managing director Yogesh Agarwal said. The bank is expected to discuss its lending rates over the next 10 days or so.

Terming the RBI’s move to hike its key rates as a “quantitative credit supply control technique” Sundararajan said his bank’s liquidity position was comfortable.

“We just recently came out with our IPO,” he said. The public bank would wait and watch how the situation evolves before taking any decision on its lending rates, he said. “We feel there is no need to react immediately.”

Bank of Maharashtra’s chief M D Mallya said while cost of funds will have to be factored in, it would analyse the situation before taking any call on its current rates.

While bankers are unanimous that their cost of funds would go up, the quantum of their lending rate hikes and timing are still to be decided. It is the private sector lenders who have kickstarted the PLR hike process. Public sector banks may not, however, immediately jump onto the bandwagon, according to indications available.

However, as banks analyse the impact of RBI’s move on their balance-sheet, the latest round of key rate hikes could well force them to pass on some of the burden of the rising cost to their customers.

With inputs from Agencies