ICICI hikes loan rates

THE CREDIT POLICY EFFECT...

Prime lending and home loan rates hiked by 100bps to 14.75% and 11.75% respectively.

ICICI Bank, the country's second-largest bank, will raise lending rates by 100 basis points from February 9, a move that is likely to trigger one of the sharpest escalations in interest rates in the banking sector so far.

The decision follows a 25-125 basis point increase in deposit rates by banks in January 2007 (one basis point is one-hundredth of a per cent) and comes a day after government-owned banks agreed to Finance Minister P Chidambaram's proposal to hold home loan rates at current levels.

ICICI also raised the interest on the tax-saving 5-year deposit scheme by 125 basis points to 9.50 per cent.

Overall, ICICI Bank has raised its benchmark or prime lending rate (PLR) by 375 basis points since January 2006.

For home loan borrowers, this latest increase means a sharp rise in EMIs. For example, the EMI would increase by close to Rs 1,000 for a Rs 15 lakh loan over a 15-year repayment period.

About 40 per cent of ICICI Bank's Rs 1,72,763 crore of advances are linked to the benchmark rates. The rest of the bank's loan portfolio carries a fixed interest rate but is largely short-term.

Vishakha Mulye, group chief financial officer, ICICI Bank, said the increase in lending rates was being effected partly to cover the January deposit rate increase and partly to offset the 25-basis-point raise in short-term lending (or repo) rates by the RBI in the credit policy last month.