The Hindu Business Line : ICICI Bank hikes benchmark prime lending rate to 11.75 pc

The bank may be the first to hike the PLR after the RBI's quarterly review of the monetary policy last month, signalling a hardening interest rate regime.

The bank has also raised home loan rates by 0.5 percentage points. The revised fixed home loan rate is 9.5 per cent, while the floating rate is 7.75-8.5 per cent, with effect from February 13.

According to a bank official, the increase in PLR will lead to a rise in short-term corporate loans rates, which is about 10-12 per cent of the bank's total loan portfolio.

According to analysts, other private sector banks may also hike lending rates soon.

"We have increased the benchmark PLR to align deposit rates with lending rates. Our cost of funds is going up with rising deposit rates and the increase in short-term lending rates to banks by the RBI. Overnight call rates have also been going up. So, going forward, we expect the higher interest rate scenario to continue," the official said.

According to an analyst, banks' margins have been under pressure because of the growing credit offtake and higher deposit rates.

"Most banks would be tempted to raise lending rates. But the state-run banks will look at other players and also wait for signals from the biggest shareholder, the Government." This is the second time this year that ICICI Bank has raised its PLR. In early January, the bank effected a 0.25-percentage point hike.

The hike in the benchmark PLR is not likely to have any major impact because the bank's domestic corporate loan book has been flat in the third quarter. Against this, the bank had an increase of 70 per cent in its retail asset portfolio. "We are more focused on retail assets," the official said.

He also said that it was a logical step and other banks too may follow suit with hike in corporate lending rates. "Not just retail deposits, even bulk deposit rates have seen a rise. So, it is logical that lending rates will also rise."

Mr Ananda Bhoumik, Senior Director with Fitch Ratings India, said: "Though demand is sensitive to interest rates, an immediate effect is yet to be seen. Credit offtake is unlikely to be affected, as demand is backed by increase in investments and consumption."

Even retail loans may not be hit by the increase in rates, as a 50 basis points hike is not very significant. But in the long run, banks will need to think about the repayment capacity of the borrower, he said.

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