ICICI Bank first to up lending rates
India's private sector ICICI Bank Limited said that it had decided to raise it prime lending rate (PLR) by 50 basis points to 14 per cent from Thursday.
The bank is the first to change its rates after the Reserve Bank of India hiked the key bank rate by 100 basis points to 8 per cent on July 21.
The State Bank of India, the country's largest commercial bank, is expected to raise its lending rates by 75 basis points to 12.0 per cent on Thursday which may trigger lending rate increases by state-run banks.
An official in the US-listed ICICI Bank said that lending rates were hiked after taking prevailing market conditions into consideration.
The central bank raised the cash reserve ratio (CRR) by 50 basis points to 8.5 per cent in two stages and reduced limits available to banks for refinance facilities by 50 per cent to protect the rupee.
But bankers said the interest rate hikes by the central bank were not temporary as perceived earlier as the rupee continued to remain under pressure.
The rupee closed on Wednesday at a fresh low of 45.32/33 per dollar, weakening from Tuesday's close of 45.15/16 and extending the year's losses to over 4 per cent.
Yields on the ten-year government bonds rose to 11.35 per cent on August 2 from 10.90 per cent on July 20.
P H Ravikumar, senior vice-president and head of corporate banking at ICICI Bank, said the rates on loans for shorter maturities had also been hiked.
SBI may hike rate too
An SBI official said that the bank could raise its PLR by 75 basis points on Thursday.
The possible rate hikes are based on the view that central bank measures to defend the rupee will not be reversed immediately, said the official, who declined to be named.
The official said the bank would also raise its deposit rates across most maturities by 50 basis points.
"Most state-run and the SBI associate banks will follow suit," said Vimal Jain, banking analyst at Prime Broking (India).
Large state-run banks and institutions had reduced lending rates in April after the RBI cut key interest rates.
Financial institutions like ICICI and the Industrial Development Bank of India are unlikely to raise rates immediately.
"We will watch the impact of the rate hikes on a sustained basis before we take a decision on our lending rates. We still believe the rate hikes are temporary," Kalpana Morparia, senior general manager with ICICI, said.
All the three term-lenders - ICICI, IDBI and IFCI - currently charge a prime rate of 12.50 per cent.
Foreign banks charge prime customers 14 to 16.5 per cent.