EMIs to stay unchanged as lenders may not take ICICI Bank cue

Banks are unlikely to follow ICICI Bank and cut interest rates on home loans. India’s largest private sector bank’s move is seen as an effort to realign its rates with the prevailing market rates and protect its market share.

Usually, in the hyper competitive home loan segment, banks outdo each other to beat rival offers.

Over the past year, banks have been focusing on increasing their retail portfolio amid a slowdown in the loan pick-up in the corporate segment. However, they may not look at tinkering with their retail lending rates, bankers said.

On Monday, ICICI Bank cut its home loan rates by 10 basis points (bps) to 10.15 per cent for loans up to ₹75 lakh to new salaried individuals till June 30.

Although ICICI Bank refused to share the rationale behind the cut, other bankers call this move a competitive realignment to expand its market share in the home loan segment. Keki Mistry, Vice-Chairman and CEO of mortgage lender Housing Development Finance Corporation, said the rate review is an ongoing process and cost of funds are not coming down, though some lenders may want to review rates in select slabs. “We will look at it depending on our cost of deposits. There is no immediate plan (to cut rates).”

With this new rate, ICICI Bank’s interest rate on home loans up to ₹75 lakh is at par with that of the country’s largest bank, State Bank of India (SBI).

Growth in the retail portfolio of ICICI Bank improved to 23 per cent as of March 31, compared with 11.4 per cent in the year-ago period. The bank’s loan growth is likely to be over 20 per cent this year.

On similar lines, HDFC’s individual loan disbursements grew by 21 per cent in 2012-13.

Bank of Baroda Chairman and Managing Director SS Mundra does not see this (rate cut by ICICI Bank) as indicative of any trend. “Cost of deposits and inflation are still high. A rate cut may help banks at this position. There is no trend as such which we may see…The move by ICICI Bank could be a strategic one.”

Mundra added banks, which may need to defend their market share in the segment, may go for such a reduction. Similarly, Bank of India chief VR Iyer also ruled out any immediate reduction in interest rates in any segment.

However, terming ICICI Bank’s step as a directional move, Monish Shah, Senior Director, Deloitte (India), said: “Players are getting more aggressive on the retail front and may want to rationalise rates in select pockets, especially with a change in Government.”