IDBI hikes rates by 25 bps; banks, HFCs to follow suit

Mumbai, Feb 1 | Updated: Feb 2 2006, 05:30am hrs
After Housing Finance Development Corporation (HDFC) increased its interest rates on housing loans by 50 basis points (bps), banks and other housing finance companies (HFCs) are expected to follow suit.

On Tuesday, IDBI hiked its retail lending rates by 25 bps. LIC Housing Finance Co and Dewan Housing Finance Corporation Ltd, the other two major players in the housing finance segment, also indicated such a move. State Bank of India and ICICI Bank are also taking stock of the situation and expected to take a decision soon.

IDBI has hiked its retail lending rates by 25 basis points with effect from February 1, 2006. The bank's chairman and managing director, VP Shetty, said: "The rate hike was led by the fact that the bank's cost of funds had also gone up. We recently raised the interest rates of our deposits in certain maturity buckets. The retail lending rate hike is a realignment of the interest rates," he said, and added that the bank's net interest margin was "under serious threat". IDBI may consider another round of hike in the interest rates if the situation so warranted it.

Mr Shetty also acknowledged that while the currently tight liquidity conditions are expected to ease somewhat due to tax inflows, MSS unwinding etc, it will still not be comfortable during this quarter.

Following Suit

IDBI Ltd hikes the retail lending rates by 25 bps
HFCs, SBI and ICICI Bank to
take a call shortly
Margins are under pressure for HFCs

The country's largest bank, the State bank of India, is yet to take a call regarding the issue. According to the bank's managing director, TS Bhattacharya, "No decision has been taken on hiking the retail rate. We are holding a meeting on February 4, 2006 and will decide accordingly."

ICICI Bank has said, "We are watching what will be the impact on our cost of funds and will decide accordingly."

Officials of Dewan Housing Finance Corporation Ltd and LIC housing Finance Ltd told FE that margins are under pressure and a hike of 25-50 bps is on the cards.

According to Kapil Wadhawan, managing director, Dewan Housing Finance Corporation Ltd, "There are clear indications that interest rates are hardening. The cost of funds is going up, the call rate has moved up to 7.5%. We are analysing the situation and expected to take a view on this in a weeks time."