HDFC, ICICI Banks Harden Rates

THIS monsoon, it’s pouring woes for households. As if a 13-yearhigh inflation was not enough, three of the country’s largest banks on Monday announced hikes in interest rates on auto and home loans—a move that will further eat into household budgets.

Home loan leader HDFC announced a 50-basis point hike in interest rate for all existing borrowers with floating rate loans. For new borrowers, the hike will be 75 basis points. Under the revised structure, floating rate for new borrowers stands at 11% while the fixed rate is 14%—a level last seen in the mid-1990s. The new rates will be effective from Tuesday.

The country’s largest bank, State Bank of India (SBI), followed with a 0.5% hike in interest rates on home and auto loans. The revision came after SBI raised its prime lending rate from 12.25% to 12.75% last week.
Within minutes of HDFC’s announcement, the country’s secondlargest bank, ICICI Bank, announced a 75-basis-point increase in fixed as well as floating rate home loans. The interest rate on a fixed-rate loan from ICICI will now be 14.75%, possibly the highest in the sector.

The only solace for households is a higher return on deposits. Both HDFC and ICICI Bank have increased the interest on deposits. While HDFC has hiked deposit rates by 50 bps, ICICI will offer 50-100 bps more to new deposits and renewals. HDFC had lowered its prime lending rate by a quarter point in February.
Meanwhile, two PSU banks, Canara Bank and Bank of India, have decided to spare home and auto loan borrowers, even as they increased interest rates for other categories of loans. Canara Bank and Bank of India have raised prime lending rates by 50 bps to 13.25%, but left home and auto loan rates untouched.

PSU banks too hiking rates
ON A floating rate basis, Bank of India offers home loans at 9.25-10% while Canara Bank charges 10-10.75%. On Monday, two other public sector banks—Allahabad Bank and Dena Bank—announced a hike in their respective prime lending rates. Both had raised prime lending rates by 50 bps to 13.5%. Canara Bank, Allahabad Bank and Dena Bank have also raised deposits by 25-75 basis points, while Bank of India is yet to take a decision.
Last week, SBI and Punjab National Bank raised their prime lending rates to 12.75% and 13% in response to the 50 bps hike in repo rate and CRR by the Reserve Bank of India.