At 12.75% rate, ICICI Bank dream home now a nightmare

A day after the RBI hiked the CRR and repo rate, ICICI Bank — the market leader in the home loan segment...

A day after the RBI hiked the CRR and repo rate, ICICI Bank — the market leader in the home loan segment — announced a 1 percentage point hike in home loan rates. Other banks, too, are likely to review their rates. ICICI Bank has increased its floating reference rate (FRR) for consumer loans (including home loans) from 11.75 per cent to 12.75 per cent with effect from March 31, 2007. The new rate will be applicable to all floating rate loans and new fixed rate loans.

House buyers who have taken loans from the bank will have to shell out more per month, apart from a further rise in the tenure of repayment. “For existing floating rate customers, the increase in the floating reference rate will be effective from April 1, 2007,” the bank said. “The existing fixed rate customers whose loans are fully disbursed will, however, not be impacted and their contracted rates will remain unchanged.”

ICICI Bank has also hiked its benchmark advance rate (I-BAR) by 1 percentage point to 15.75 per cent per annum, payable monthly.

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Some other top commercial banks like SBI and Punjab National Bank, too, have hinted at a rise in interest rates. Said an SBI official, “The bank will have to review interest rates. The hike in the CRR and repo rate will impact credit growth and hit the profitability of banks.” Bankers have pointed out that funds costs would rise in the wake of the latest RBI move. “The move is aimed at reinforcing the focus on price stability and containing inflation,” noted Canara Bank CMD M B N Rao. “It will reduce money supply in the system and increase cost of funds. The CRR and repo rate increases indicate a dearer money policy. The CRR hike will lead to pre-emption of lendable funds.”

Many banks, including ICICI Bank, have warned of a credit offtake slowdown. The steep interest rise has prompted several home buyers to defer their purchases, a bank official pointed out.

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