ICICI Bank first off the block with PLR hike

Home loans to be costlier by ?%

ICICI Bank became the first bank to hike its benchmark prime lending rate (PLR) on Monday, raising it by 50 basis points from 10 per cent to 10.5 per cent.

The country's second largest bank's floating reference rate (FRR) has also increased by 50 basis points effective tomorrow.

This means home loans will become dearer by 0.5 per cent across all maturities. Fixed rate home loans also become dearer by 75 basis points to 8.5 per cent from the current level of 7.75 per cent. The bank today also announced an increase of 25-75 basis points in its deposit rates.

"This is in line with the market trend as yields on treasury bills and government securities have risen, and repo rate has also been hiked. It is imperative to give a better rate to our depositors," Chanda Kochhar said.

With this rise interest rate on short-term deposits have risen by 0.25 per cent while that on deposits of five years and beyond have increased by 75 basis points to 6.25 per cent. Customers who had jumped at the 'Diwali offer' of 7 per cent on floating rate loans will now have to pay 0.5 per cent more effective January 1, 2005.

This is as per the bank's policy of resetting rates on a quarterly basis, stated a press communique. However, the offer had come out only in early November. Existing fixed rate loan customers on the other hand, will not be affected by the hike in interest rates.

On personal loans and other individual loans such as car finance, Kochhar told Business Standard that the interest rates will not be affected.

These rates are determined by other aspects like dealers' and manufacturers' schemes, she pointed out. The bank's press release issued today also implied that personal loans would not be affected by the hike in lending rates.

Kochhar added that the hike in home loan interest rates had nothing to do with the change in the risk weightage announced by the Reserve Bank of India in its late October policy statement.

"The hike is a temporary phenomenon and even Basel II talks of reducing the risk weightage on home loans," she said.

With apprehensions of an asset bubble, the central bank had increased the risk weight for lending to housing to 75 per cent from 50 per cent and on consumer credit including personal loans and credit cards to 125 per cent from 100 per cent. Bankers expect the 125 per cent risk weight to apply to car loans too.

Meanwhile, while most banks have increased deposit rates, they have kept their benchmark PLR unchanged. However, they have hiked the spread by 50 to 150 basis points for term loans and working capital for corporate customers. Big brother State Bank of India (SBI) too proposes to hike its home loan rates. However, A K Purwar, the bank's chairman had stated that the bank would not touch its PLR.