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ICICI Bank hikes rate by 100 bps

ICICI Bank hikes rate by 100 bps

Apnaloan.com Research Bureau

10 Aug 2007

Banks have embarked on another round of lending rate increases across the board, following the Reserve Bank of India's (RBI) decision on Friday to hike the cash reserve ratio and repo rate. 


ICICI Bank, the leading player in the home and other retail loans market with about 30 per cent incremental market share, has taken the lead and increased its lending rates for both individuals and companies by 100 basis points. (One basis point equals 1/100th of a percentage point.) The asset-liability committees (ALCOs) of most public sector banks are expected to meet next week to take a view on interest rates. 


ICICI Bank has raised its floating reference rate (FRR) by 1 percentage to 12.75 per cent. FRR is the benchmark rate to which home loans are linked. The largest private sector bank has also increased its benchmark advance rate (I-BAR), the rate to which all corporate loans are pegged, to 15.75 per cent from 14.75 per cent. 


ICICI Bank has a home loan portfolio of around Rs 60,000 crore, about 90 per cent of which is advanced at floating rate. Other banks and housing finance companies are expected to follow suit. The quantum of increase is likely to be up to 50 basis points. 


The RBI increased its overnight lending rate (repo rate) by 25 basis points to 7.75 per cent. Additionally, the central bank also increased the cash reserve ratio (CRR), the proportion of funds that banks need to keep with the RBI, by 50 basis points in two stages, effective April 14 and April 28, to 6.50 per cent. The central bank's move will result in banks' lendable resources depleting and pushing up their cost of funds. 


"The hike in rates has been triggered by a rise in cost of funds as well as the recent hike in the repo rate and cash reserve ratio," said Rajiv Sabharwal, senior general manager, ICICI Bank. 

(Courtesy: Business Standard)


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