The rate hike by ICICI Bank comes just day after the central bank increased benchmark rates by 25 basis points.
MUMBAI: Loans to companies are set for an increase. On Friday, ICICI Bank, the country’s second-biggest bank, raised its prime lending rates by half a percentage point, which will raise the cost of retail home loans by a like amount. Housing Development Finance Corporation and other rivals have maintained their rates for now.
The rate hike by ICICI Bank comes just day after the central bank increased benchmark rates by 25 basis points. A basis point is one-hundredth of a percentage point.
"A sooner-than-expected hike has increased market fears that the Reserve Bank of India’s (RBI’s) recent increase was to catch up for not raising rates in April and, therefore, that the RBI may raise it again in July,’’ UBS Investment Research said in a note to clients.
Banking shares rose for the first day in five, with the 18-stock Bankex index on the Bombay Stock Exchange gaining more than 2%, after sliding 11% in the past four days.
According to Crisil Marketwire, the country’s largest commercial bank, State Bank of India, would take a decision on hiking home loan rates in the next four to five days. "When RBI takes a decision, we will have to look at our rates," the newswire quoted an SBI official as saying.
State Bank offers floating home loan rates at 8.75% for a five-year tenure and 9.25% on 15-year periods. The bank’s fixed interest rates start from 9.5%. It has stopped offering loans for over 10 years at fixed rates. The official said there was no need for State Bank to take a hurried decision, even if other banks had raised interest rates.
ICICI Bank’s 0.5% hike in home loan rates is effective next week. "ICICI Bank has increased rates, but their card rates are slightly lower than ours," the SBI official said. "The increase in interest rates clearly shows that it is unlikely that rates would soften and, in fact, they could even rise from these levels,’’ Vishakha Mulye, chief financial officer of ICICI Bank, said in a phone interview. ``We raised the rates after watching the market for the past two-and-a-half months.’’
The RBI unexpectedly raised short-term interest rates after the inflation rate in the week ended May 20, accelerated to 4.74%, the fastest since October.
This week also saw the government raising prices of petrol by 9% and diesel by 7%, raising concerns that inflation may accelerate further. India estimates inflation will quicken to between 5-5.5% by the end of the fiscal year on March 31.
The yield on the Indian government’s 10-year bonds rose 14 basis points to 7.81% after Thursday’s rate rise.
Other bankers said there was sufficient liquidity in the banking system and the demand for loans was subdued, easing pressure on them to increase lending rates immediately. "I won’t do anything to increase lending rates because liquidity is good,’’ M. Balachandran, chairman of Bank of India, said.
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