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ICICI Bank raises home loan rates

The country's largest private-sector bank, ICICI Bank, announced a 0.5% increase in lending rates for home loans on Friday.

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MUMBAI: The country's largest private-sector bank, ICICI Bank, announced a 0.5% increase in lending rates for home loans on Friday. This could raise EMIs by Rs27-30 for every Rs1 lakh as new floating rate loans will cost 9.5% and fixed-rate loans 10.75%.

The decision comes after the Reserve Bank of India's surprise announcement of a 0.25% increase in the rates at which it borrows from and lends money to banks.

HDFC, the other major source of home loans, has held its hand for now. "Our lending rates are a function of our cost of funds," said Keki Mistry, managing director. "We have not seen any change in our cost of funds. Hence, there is no immediate need for a rate increase." HDFC currently provides floating rate loans at 9% and fixed rate ones at 10.5%.

ICICI Bank's move may not be isolated. Many banks' asset-liability committees went into a huddle to figure out whether, and by how much, they should push up rates. SBI officials were non-committal, but sources said the country's largest commercial bank will also raise interest rates soon.

Friday's increase is the second by ICICI Bank in successive months. In May, the bank had raised its rates by 50 basis points in both home loan segments. "When the Reserve Bank raised the reverse repo rates by 25 basis points (100 basis points make 1 per cent), it was a clear signal that interest rates are not likely to soften in the coming months," Chanda Kochhar, ICICI Bank executive director, told DNA.

She said the bank had held back the quantum of the rise last month hoping that interest rates would soften. But this did not happen.

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