Rate hikes deal blow to growth

Aug 23 2013, 08:54 IST
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SummaryHome, auto loans to become more expensive as ICICI, HDFC raise base rate, retail PLR by 25 bps.

— banks are paying more for money in the wholesale market. Yields on certificates of deposit have risen by around 300 bps since early July; over the same time, the yield on the benchmark bond has risen by 80 basis points to 8.234%, although it had spike to 9.5% on Wednesday, with the bond market selling off. Consequently, companies too are paying more than they were a couple of months back — the yield on three-month commercial paper has jumped more than 400 basis points since July 2 to 12.2%.

Although loan growth rose to 16.7% year-on-year in the fortnight to August 9, offtake of non-food credit has stayed well below those levels in the past three months. Indeed, loan growth so far in FY14 has been under 3%, indicating weak demand.

ICICI Bank also raised its benchmark prime-lending rate (BPLR) and its floating reference rate for consumer loans, including home loans, by 25 bps, effective August 23. Last week, Kotak Mahindra Bank had also raised its base rate by 25 bps to 10%, while on July 31, Yes Bank raised it by 25 bps to 10.75%. In the case of non-banking finance companies too, the increased cost of funds has compelled lenders to charge more. Commercial vehicle financier, Shriram Transport, for instance, raised its lending rates on all fresh loans by 25-50 bps, across categories, starting August 1.

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