SBI chief expects home loan rates to rise

After ICICI Bank hiked its benchmark prime lending rate (BPLR) for corporates, the country's largest bank, State Bank of India (SBI), has said home loan rates would certainly rise.

"The liquidity in the system has been under pressure owing to the redemption of India Millennium Deposits (IMDs). The liquidity would remain under pressure till the end of March 2006 on the back of credit demand," said A K Purwar, chairman of SBI, told reporters on the sidelines of a seminar.

"Home loan rates would rise for the medium and long term," Purwar said but did not state when SBI would decide on an increase in lending rates.

Housing Development Finance Corporation (HDFC), the country's largest mortgage lender, too has suggested that interest rates would rise. Centurion Bank of Punjab has already hiked corporate loan rates by 50 to 100 basis points depending on the rating and risk appetite of the corporate.

Smaller banks such as Centurion are waiting for bigger players to go ahead and increase retail loan rates.

"Retail lending rates are driven by competition. If a big player takes the initiative to up its retail loan rates then we will follow," said Vivek Vig, head-retail banking, Centurion Bank.

ICICI Bank raised its benchmark PLR by 25 basis points to 11.25 per cent early this month. This will increase the interest cost of existing borrowers.