HDFC, UTI Bank raise rates

The Reserve Bank's latest CRR and repo rate hikes reverberate across markets

Private sector lenders Housing Development Finance Corporation (HDFC), its subsidiary HDFC Bank and UTI Bank today raised their lending rates by 50-100 basis points, but public sector banks appear to be adopting a "wait and watch" approach.

HDFC, the second largest mortgage lender after ICICI Bank, raised its lending rates by 75 basis points, but effected a smaller hike for existing borrowers by raising its prime lending rate (PLR) by only 50 basis points.

HDFC Bank and UTI Bank raised their PLRs by 100 basis points to 15 per cent. HDFC and ICICI Bank account for over half of the home loans outstanding of over Rs 2,10,000 crore. 
 

UPWARD MARCH Prime lending pressures ( in %)
	April-06	April-07
HOME LOAN PLR
ICICI Bank	9.25	12.75
SBI	10.25	12.25
HDFC	11.25	14.00
CORPORATE PLR
SBI	10.25	12.25
ICICI Bank	12.75	15.75

K C Chakrabarty, chairman of Chennai-based Indian Bank, said "Deposit costs have (already) increased to 9-9.5 per cent. We cannot go on increasing interest rates. We need to raise rates only to control credit growth. We will wait till the (RBI announces its annual) policy on April 24."

ICICI Bank raised its lending rates by 100 basis points last Saturday, a day after the Reserve Bank of India (RBI) surprised the market with a 50-basis-point increase in the level of cash balances banks need to maintain with it and a 25-basis-point increase in the rate at which it lends funds to banks for a day against government securities, which went up to 7.75 per cent.

"Having maintained loose monetary conditions for nearly three years and contributed to the economic boom, the RBI seems to be in a hurry to cool down the economy. Such panic actions could result in a sudden reversal of consumer and business sentiment, leading to a hard landing for the economy," said Prasanna A, a fixed income analyst at ICICI Securities.

"The rising interest rates are a matter of great concern as the rates have shot up by 3 percentage points in the last few quarters. It is the quantum and frequency of hikes which is making us look for alternative financing options abroad," said Seshadri Rao, director-finance at Jindal group.

MBN Rao, chairman of Canara Bank, said, "We will review pricing in sub-PLR lending as over 50 per cent of our loans portfolio is sub-PLR (including home loans). We will look at the (interest rate) trends and (how the) market (moves) and then decide on raising rates."