ICICI hikes loan rates by 50 bps

Monetary tightening by the Reserve Bank of India (RBI) has begun to take effect, with ICICI Bank, the country's second largest bank, today raising lending rates by 50 basis points across the board, its third identical hike since April 2006.

The hike came on the back of the RBI strongly signalling hardening of interest rates at the auction of 91-day treasury bills earlier in the day.

The RBI accepted bids at a five-year-high yield of 7.1027 per cent, over 45 basis points higher than the figure at the previous auction on December 6, triggering speculation that it would raise its signalling interest rate in its January policy review. One basis point is one-hundredth of one per cent.

ICICI Bank said the hike in lending rates for both corporate and consumer loans, including home loans, would take effect on December 18.

The increase raises the bank's benchmark advance rate to 13.75 per cent from 13.25 per cent. The revised floating reference rate for consumer loans, including home loans, will be 10.75 per cent.

The bank also hiked its deposit rates by 25-75 basis points for varying maturities, to ensure accretion of deposits for credit needs. State Bank of India (SBI) had last week increased its deposit rates by similar percentage points.

The RBI last Friday raised the cash reserve ratio (CRR) by 50 basis points in two equal phases, effective from December 23 and January 6, over concerns of an overheating economy and to rein in unprecedented growth in credit and rising inflationary expectations.

Public sector banks are expected to follow ICICI Bank's lead for protecting their margins. A senior State Bank of India (SBI) official had said last week that the raising of CRR would lead to an increase in the bank's lending rates by at least 50 basis points. Union Bank of India officials expected an increase of 75 basis points in lending rates.

Vishakha Mulye, ICICI Bank's group chief financial officer, said, "It has been ICICI's policy to pass on any increase in the cost of funds. The 50-basis-point hike in lending rates will be enough to protect our margins."

ICICI Bank has increased home loan rates by 150 basis points since April 2006, which translates into an increase of about Rs 90 per lakh of loan in the equated monthly instalment of customers who borrowed before April 2006.

Yes Bank also hiked its deposit rates today, offering the highest interest rate of 8.50 per cent for a maturity period of one year and two days. ICICI Bank offers 8.50 per cent interest on deposits of 590 days.