Now, ICICI and Dena Bank hike lending rates 25 bps

ICICI Bank on Friday increased key lending rates by 25 basis points, the sixth bank to do so after the Reserve Bank of India (RBI) hiked key policy rates on June 16.

The country?s largest private sector lender raised its base rate by 25 basis points (bps) to 9.5% and benchmark prime lending rate by 25 basis points to 18.25% with effect from July 4, 2011. The Floating Reference Rate has gone up to 15.25%.

Another Mumbai-based lender Dena Bank, too, increased key lending rates by 25 basis points on Friday. Earlier this week, Canara Bank, Indian Overseas Bank had increased their key lending rates by 25 basis points each.

Corporation Bank hiked key lending rates by 35 basis points. The country’s top lender State Bank of India (SBI), whose Asset Liability Committee (ALCO) met on Thursday, is yet to increase rates.

Last week, private sector lender ING Vysya Bank became the first lender to increase its key lending rates. The Bangalore-based raised base rate by 25 basis points to 9.7%, while its benchmark prime lending rate (BRPL) is 18.25%. All loans disbursed by banks after July 1, 2010 are linked to the base rate.

The IDBI Bank’s ALCO, which was the first to meet post the interest rate increase on June 16, kept its base rate and benchmark prime lending rate unchanged at 10% and 14.5% respectively.

The bank said low demand for credit was one of the reasons for not raising rates.

Most banks are witnessing slowdown in loan growth as higher interest costs are hurting new investments and slowing economic activity. As per RBI data released on Wednesday, total loans given by commercial banks rose by R49,817 crore to R39,24,193 crore between April this year to June 17. Loans grew R61,148 crore in the same period last year. Most bankers are complaining about fewer new projects sanctions by companies as interest rates are high. The central bank has raised interest rates 10 times in the past 15 months to curb inflation and has indicated that it is willing to sacrifice on growth in the short term.

High interest-rates and increase in deposits rates is likely to put pressure on net interest margin (NIM) at banks. Most analysts are expecting a 20-30 basis points squeeze in NIMs in year 2011-12.

?Net interest margins should decline, bond portfolios to be marked down and loan growth should slow,? Citi said in its report dated June 30 on first quarter result preview for Indian banks.