The country’s largest private bank ICICI Bank and the largest home mortgage company HDFC today announced a 75 basis point increase in lending rates, which will raise borrowing costs sharply for home, personal and corporate loans.
Two days after the Reserve Bank of India announced a 50-basis point increase in the repo rate, or the rate at which it lends to banks, and a 25 basis point increase in the cash reserve ratio, the proportion of deposits banks must set aside, the only good news came in the form of a 75 to 100 basis point rise in fixed deposit rates by ICICI Bank.
Other players like Central Bank of India, IDBI Bank, IndusInd and Bank of Rajasthan only raised their benchmark prime lending rates (PLRs).
Among the big banks, public sector player State Bank of India is the only one not to announce a rate rise yet. Several smaller players are expected to raise rates over the next few days following the ICICI Bank and HDFC announcements.
| THE RISING COST OF MONEY (Major banks’ lending rates) | ||
| Bank | Increase (basis points) | New rate (%) |
| ICICI Bank | ||
| Consumer loans* | 75 | 14.25 |
| Companies** | 75 | 17.25 |
| HDFC | ||
| Floating rate | 75 | 11.75*** |
| Fixed rate | NIL | 14.00 |
| PLR INCREASES | ||
| Central Bank | 75 | 13.75 |
| IndusInd Bank | 75 | 17.00 |
| Yes Bank | 50 | 17.00 |
| Bank of Rajasthan | 100 | 16.00 |
| DEPOSIT RATES | ||
| Bank |
Increase (bps) | |
*** Minimum rate on new loans
^ For deposits of one year and one day to 18 months
(Source: Banks)
ICICI Bank said the floating rate on consumer loans — including home loans — will rise from 13.50 to 14.25 per cent a year. Existing fixed rate borrowers will, however, not be affected, though fresh borrowers opting for the fixed rate facility will have to pay 15.5 per cent a year.
For corporate borrowers, ICICI Bank raised its benchmark advance rate to 17.25 per cent from 16.50 per cent. At 17.25 per cent, ICICI Bank is offering the most expensive rate among the major players.
Similarly, HDFC said it has increased its retail PLR, on which the floating rate loans are benchmarked, 75 basis points, while fixed-rate borrowers — existing or new — will stay at 14 per cent.
| WHAT IT MEANS FOR HOME LOANS A 25-basis point rise in interest rates will translate into a hike of Rs 14-17 a month for a housing loan of Rs 1 lakh. The increase varies in accordance with the tenure of the loan | |
| Tenure (Years) |
Increase |
| 20 years | 17 |
| 15 years | 16 |
| 10 years | 15 |
| 5 years | 14 |
For existing floating rate borrowers, the rate increase will be effective over the next three months as the home loan major said those borrowers whose loans are due for pricing on August 1 will see the change first. For new customers, the loan will now be priced at a minimum of 11.75 per cent a year. Both ICICI Bank and HDFC said the rate increase will be effective August 1.
Central Bank has increased its PLR 75 basis points to 13.75 per cent but left deposit rates unchanged. “The cost of deposits has gone up and the bank cannot afford to keep its PLR unchanged," the bank’s Chairman and Managing Director M S Daruwalla said.
The bank has also decided to reduce the negative spread or the difference between the rate at which large companies borrow and the PLR by 100 basis points. So a company that had borrowed at, say, 11 per cent or two percentage points below the earlier PLR, will have to brace for a 175 basis point increase and pay 12.75 per cent.
Such increases will be effective when contracts come up for renewal.
While IDBI Bank said its PLR will go up 50 basis points to 14.25 per cent, Yes Bank it will raise lending rates by 50 basis points to 17 per cent from August 1. Yes Bank also decided to increase deposit rates for a tenor of 1 year and 1 day up to 18 months by 25 basis points to 10 per cent. Bank of Rajasthan said it has will raise PLR 100 basis points to 16 per cent.
Banks, however, indicated that they will provide various payment options to home loan borrowers to help them meet the higher burden.
Though lending rates are going up, HDFC joint managing director Renu Sud Karnad said the credit growth target is not being lowered.
“We expect to continue to grow above 25 per cent as the demand for home loans remains,” Karnad said.
“People will not indefinitely postpone their decisions whenever changes occur in the market. The rate is a variable rate and will also come down. For those in the 30 per cent tax bracket, the effective increase is 50 basis points while for those in the 20 per cent tax bracket, the increase is 60 basis points,” she added.
“Deposit rates are more market-driven and dynamic and will change every day. But we expect a 50-100 basis point increase over various tenors,” said IndusInd Bank Managing Director & CEO Romesh Sobti said. The bank raised its PLR but left deposit rates unchanged.
