ICICI Bank Raises Lending Rates to 8.6%; Home loans, car loans will be more expensive; NDEs will increase


ICICI Bank on Thursday raised the external benchmark lending rate by 50 basis points to 8.60%. The move came after the Reserve Bank of India (RBI) raised the repo rate by 50 basis points to rein in rising inflation in the country. After a decade of low interest rates over the past two years, borrowers will now have to prepare for further interest hikes on their personal loans.

“ICICI Bank External Benchmark Lending Rate” (I-EBLR) refers to the RBI policy repo rate with a markup over the repo rate. I-EBLR is 8.60% papm effective June 8, 2022,” the private lender said on June 9.

Why banks are raising lending rates

Earlier in May, the central bank raised the repo rate by 50 basis points. Two consecutive repo rate hikes by the central bank will increase the cost of funds for banks. Repo rate in the interest rate at which the Reserve Bank of India lends money overnight to commercial banks against government securities. Thus, a rise in the repo rate has a direct impact on loans to individuals such as home loans and car loans which are linked to the banks’ external benchmark.

“The RBI has cumulatively increased the repo rate by 90 basis points over a two-month period. With consecutive rate hikes, an increase in deposit rates and a reduction in excess liquidity in the system; the cost of funds for most financial institutions will gradually increase. This will force lenders, both banks and NBFCs/HFCs, to pass this hike on, partially or entirely, to consumers,” said Ravi Subramanian, Managing Director and CEO of Shriram Housing Finance.

“Loans tied to external referrals like Repo would see faster transmission than those tied to marginal cost of funds (MCLR) based landing rate and corporate referrals,” he added.

Besides ICICI Bank, Bank of Baroda, Punjab National Bank and Bank of India have also raised their benchmark external lending rates.

Will interest rates on home loans and car loans increase further?

The Monetary Policy Committee (MPC) of the Reserve Bank of India has unanimously decided to raise the repo rate by 50 basis points to 4.90% while remaining focused on the “withdrawal of accommodation” on June 8. The objective was to fight against soaring inflation while supporting growth. With two consecutive interest rate hikes, the repo rate now stands at 4.9%.

Experts believe that the central bank will raise interest rates in the future. “We now expect RBI to be able to factor in a rate hike in August and even October policy as well, and lift it above the pre-pandemic level by August to 5.25% and in October at 5.5%.Our peak rate at the end of the cycle now has a lower limit of 5.5% and could go up to 5.75% depending on the path of inflation,” Soumya said. Kanti Ghosh, Group Chief Economic Advisor, State Bank of India.

If the repo rate goes up, lenders will pass it on to consumers. Borrowers can therefore expect interest rates on home and auto loans to rise further this fiscal year.

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