Realty bite: ICICI ups home loan rate by 1%

APRIL 1, 2007: ICICI Bank, India’s second largest bank, on Saturday raised the interest rate on its home loans by 1%, a hike that will crush new buyers with a minimum interest rate of 12% on loans. The decision follows the Reserve Bank of India’s decision on Friday to increase the rate at which it lends to banks.

This is the fifth increase in ICICI’s rates since May last year, when housing loans were going for only 8.5%. The latest hike will increase the equated monthly instalments payable by Rs 60 for every Rs 1-lakh loan taken for a tenure of 15 years. ICICI has also increased the broad floating reference rate that determines other consumer loans like car and personal loans to 12.75%. The benchmark rate at which it will lend to business is also up a percentage point to 15.75%.

ICICI Bank deputy managing director Chanda Kochar said, "The rate increase will definitely slow down disbursal of new loans, a trend already visible in the last six months."

ICICI’s hike is expected to be followed by other banks. An HDFC spokesperson said senior managers would meet on Monday to decide the course of action.

The overall increase in lending rates is also expected to depress, among other things, demand for cars. Says a Mumbai-based Maruti dealer: "It is a double whammy for car buyers, who faced an increase in car prices after the budget."

But it may not be all gloom. In the last one year, real estate prices have gone through the roof due to sustained demand and low home loan interest rates. A prominent builder expects prices to ease a bit if demand for new homes drops after the current hike, making homes more affordable. Says the builder: "The price increases slowed down after the interest rate hikes in the last few month. This time, prices may actually drop."

Source:Times of India