Private Banks Hike Lending Rates Amid Inflation Concerns

Strategic Insights -

As the Reserve Bank of India (RBI) attempts to control inflation, two major private banks, ICICI Bank and HDFC Bank, have increased their lending rates by up to 50 basis points, making home, auto, and commercial loans more expensive for consumers. ICICI Bank has hiked its base rate to 8.75% and HDFC Bank to 8.20%, with effect from February 24. This move follows the RBI's decision to increase key short-term interest rates by 25 basis points to 6.5% and 5.5% for the repo and reverse repo rates, respectively.

Key Takeaways:

  • ICICI Bank raised its base rate by 50 basis points to 8.75% with effect from February 24, while HDFC Bank increased its base rate by 45 basis points to 8.20% with effect from tomorrow.
  • The country's largest private bank, ICICI, announced an increase of 50 basis points in its benchmark prime lending rate (BPLR) and in its floating reference rate for consumer loans, including home loans, with effect from February 24.
  • Customers taking fixed-rate loans with ICICI will not be impacted by this increase, and their contracted rates will remain unchanged.
  • The Union Bank of India, Corporation Bank, Dena Bank, Bank of India, Syndicate Bank, and Indian Overseas Bank raised their lending rates by 25-50 basis points after the RBI's announcement.
  • The State Bank of India, the country's largest lender, raised its base rate and BPLR by 25 basis points each to 8.25% and 13%, respectively.
  • Allahabad Bank increased its BPLR by 25 basis points from 13.50% to 13.75% with effect from February 24.
  • Although borrowers can switch to the base rate system without charge, only those customers who have not switched over to the base rate so far will be affected by the revised BPLR.

Statistics:

  • ICICI Bank's base rate increased by 50 basis points to 8.75%.
  • HDFC Bank's base rate increased by 45 basis points to 8.20%.
  • ICICI Bank increased its benchmark prime lending rate (BPLR) and its floating reference rate for consumer loans, including home loans, by 50 basis points, both with effect from February 24.
  • The RBI increased the repo rate to 6.5% and the reverse repo rate to 5.5% to control inflation.
  • ICICI Bank's contracted rates for fixed-rate loans remain unchanged.
  • The base rate is the minimum lending rate that banks can charge their customers.
  • The benchmark prime lending rate (BPLR) is used for determining interest rates on loans and advances sanctioned up to June 30, 2010.

Sources:

  • RBI announcement on January 25, 2011
  • ICICI Bank press release on February 23, 2011
  • HDFC Bank press release on February 23, 2011
  • Union Bank of India press release on February 22, 2011
  • State Bank of India press release on February 23, 2011
  • Allahabad Bank press release on February 23, 2011