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ICICI Bank, India`s second-largest bank has reduced interest rates on loans by 50 basis points, making it the second rate cut in six weeks. The move will lessen rates on home and auto loans for new and existing borrowers of ICICI.
Other leading banks are also cutting rates in the absence of a quick loan offtake. On May 7, India`s largest home finance company HDFC reduced its prime lending rate (PLR), the benchmark rate to which all floating rate loans are linked by 25 basis points.
HDFC also made an additional 50 basis points reduction in interest rates for new borrowers availing loans in the range of Rs 30 lakh to Rs 1 crore in a less-publicised move. This was done by revising the spread between PLR and the loan rate.
A 25-basis point cut lowers the loan EMI by around Rs 15 for every Rs 1 lakh loan, and 50 basis points lowers the EMI by Rs 30.
The decrease could have been in anticipation of more rate cuts by State Bank of India. Indeed, SBI chairman OP Bhatt on Thursday said that there was room to cut rate by another 25 basis points on loans as well as deposits.
ICICI Bank CEO Chanda Kochhar said, "In the retail segment, we are seeing a change in sentiments. Customers seem to be in a mood to purchase homes. More customers are closing deals. Though we are not yet back to last year`s levels, we are seeing an improvement."
With this rate cut, ICICI`s rates for home loans up to Rs 30 lakh will be 9.25%, the same as HDFC`s while for higher amounts, HDFC loans would still be cheaper. Under the new offering, the rate cut would be greater for new borrowers of ICICI.
Earlier, ICICI Bank had different loan slabs- up to Rs 20 lakh, Rs 20-30 lakh and Rs 30 lakh and above; the interest rates on these loans were 9.75%, 10% and 11.5%, respectively. The bank has now combined the first two slabs and interest rates up to Rs 30 lakh would be at 9.25%. Interest rates for loans above Rs 30 lakh would now be between 10% and 11%, depending on the customer profile.
The revised floating reference rate of the bank would be 12.75% effective from June 5. All the existing retail loan customers, especially home loan customers, will gain profit from this reduction. It has also reduced its benchmark advance rate by a similar amount to 15.75%.
Bank of India chairman and managing director SA Bhat stated, "If RBI allows separate PLR for fresh loans, then we will reduce rates immediately."
He pointed out that the banking system has already reduced deposits rates by an average of 175 basis points since its peak last year while lending rates have been reduced by an average of 150 basis points. With the result, banks are already taking a hit of 25 basis points in their margins.
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Posted On : 05 Jun 09
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