EMI PINCH FOR LOANEES

ICICI Bank, HDFC raise their benchmark lending rates, making home and auto loans costlier

Leading financial institutions ICICI Bank and HDFC have raised their benchmark lending rates by 0.25 per cent, making home and auto loans costlier.

The upward spike follows fears within the system that the RBI’s recent tightening measures to prop up the battered rupee are here to stay longer than expected.

Following the rate revision, HDFC will offer housing loans up to Rs 30 lakh at 10.40% and home loans above Rs 30 lakh at 10.65%. The ICICI Bank’s base rate will increase to 10%. The rate revision will make all loans and advances offered by the ICICI Bank on floating interest rate from July 2010 expensive.

The bank’s fixed rate customers will not be impacted by the revision in lending rates and their contracted rates will remain unchanged.

Home loan equated monthly installments were set to rise as the rupee slides to record lows virtually every day. Many private lenders had already hiked their base rates — the rate to which all loans are linked. The base rate is the rate below which a

bank cannot lend, and an increase in the base rate would imply an increase in lending rates for home loans, car loans and personal loans as well. On Monday, private lender Axis Bank increased its base rate by 25 basis points to 10.25 per cent. But consumers start feeling the pinch once bigger lenders like HDFC and ICICI Bank announce rate hikes. Banks fear with loans becoming dearer, in the festival season starting in October, sales of automobiles and durable goods will plummet, hurting industry and growth further. The RBI, in its last policy review, had kept the repo rate, or the rate at which it lends to the system, at 7.25 per cent. It also kept the cash reserve ratio, the amount of deposits a bank parks with the RBI, unchanged at 4 per cent. Post the RBI policy, SBI chairman Pratip Chaudhuri had said that bankers will wait for two to three weeks before taking a call on increasing lending rates. However, with the benchmark 10-year bond yield spiking, it was apparent that borrowing costs were going to be higher and a hike in lending rates became imminent. Earlier this month, ICICI Bank had raised fixed deposit rates by up to 0.75 per cent across select maturities.