Signalling a hardening of interest rates, private sector banks have started raising retail lending rates.
ICICI Bank, the country’s largest private sector lender, says it is going to charge 25 to 50 basis points more for auto loans and has discontinued its teaser offer on home loans.
Similarly, HDFC Bank has increased auto loan rates 25 to 50 basis points. Kotak Mahindra Bank has increased interest rates on auto and home loans by a similar amount.
The new home loan rates came into effect from Monday along with the end in the teaser rate, which offered 8.25 per cent on loans of all values for the the first year.
The new rates will be applicable to fresh loans.
In addition, HDFC, the country’s largest mortgage lender, also decided not to extend its special fixed-cum-floating rate offer. ICICI Bank and HDFC Bank’s new auto loan rates, linked to the tenure and the segment, are effective Friday. For ICICI Bank, auto loans up to 35 months will now cost 9 to 13 per cent; loans for 36 to 60 months will cost 8.75 to 12.5 per cent. For HDFC Bank, the rates will be 7.5 to 15.5 per cent, depending on the tenure and vehicle segment.
ICICI Bank has also reworked the slabs, charging 8.75 per cent a year for loans up to Rs 30 lakh, instead of the earlier Rs 20 lakh ceiling.
For home loans between Rs 30 lakh and Rs 50 lakh, their rate has been revised to 9 per cent (from 9.25 per cent for loans between Rs 20 lakh and Rs 50 lakh) and loans above Rs 50 lakh will cost 9.5 per cent a year (from 9.75 per cent).
The increase in auto loan rates by private banks will provide a twin blow to car buyers, who already have to contend with an increase in prices following the government’s decision to increase excise duty 2 percentage points.
“It is a message that interest rates will not go down further, they will only go up. But it (the increase) will only be to the extent to which we can protect our margins,” said Pralay Mondal, country head for retail assets and credit cards at HDFC Bank, the country’s second largest private sector bank.
Following the Reserve Bank of India’s decision to raise the cash reserve ratio 75 basis points in the quarterly review of the monetary policy, a move that sucked out Rs 36,000 crore from the system, banks have resorted to increasing deposit rates by up to 150 basis points for certain maturities.
“Deposit rates have gone up over the last few weeks. So, in reaction to the interest rate scenario, we have raised lending rates,” added a senior executive at a private sector player. Rising demand also made a rate rise possible he added.
Interest rates are increasing not just for the retail segment but in the last few weeks even companies have had to shell out more for short-term loans such as working capital finance due to slightly tighter liquidity conditions as well as higher demand for loans.
For the year-ended February 12, bank credit growth was estimated at 15.07 per cent, compared to 9.65 per cent for the 12 months-ended October 23. Similarly, banks, which were parking over Rs 1,00,000 crore on a daily basis with RBI through the reverse repo route till a few months ago, today parked Rs 83,745 crore with the central bank today.
“As it is, banks will move to the base rate regime from April that will mean higher rates for short-term loans. So, we are leveraging the situation now when companies need funds,” said a senior public sector bank executive.
Public sector banks, however, are expected to wait till the end of the month to review their retail lending rates.
“We have no immediate plans (to raise rates). We will see how deposit rates are moving. If there is a shift in the interest rate scenario, then we will take a call. At the moment, we are not looking at any interest rate revision,” Bank of Baroda Chairman and Managing Director MD Mallya said.
“We have said earlier that our bank has no intention to increase lending rates, such as auto, home and the benchmark prime lending rate, till March,” added Union Bank of India Chairman and Managing Director M V Nair.
A State Bank of India executive said that the country’s largest lender will review its home loan and auto loan rates at the end of the month. Its teaser rate offer is due to end on March 31. last week, SBI Chairman O P Bhatt had said interest rates were unlikely to go up till May-June.