Interest rate hike justified: ICICI Bank

Buying your dream home just got costlier. The country's biggest home loan provider, ICICI Bank has hiked interest rates on home loans by 1%. It has hiked floating reference rate for consumer loans by 1% to 11.75%.

The bank has hiked prime lending rates for corporate loans by 1% to 14.75%. Even deposit rates are up 1.25% for a five year loan. These hikes will come into effect from Friday (February 9).

Retail loans, especially home loans have been growing at a scorching pace of 35% over the last four years. The latest hike could help slow down the growth. But ICICI Bank says it is cost, and not pace that's the immediate concern.

"The liquidity has been an issue for a while now, and a direct result was in the deposit rate shooting up quite sharply in the last few months. You could see deposit rates have gone up from anywhere between 7-7.5% to something like 9-9.5%. So I guess this had to happen sometime, and this has been passed on to the consumer on the lending side as well. Really a big deal is being made out of this, interest rates moving up from 9.5% to 10%. But clearly if you were a depositor, you should be quite happy," explains V Vaidyanathan, Executive Director, ICICI Bank.

However, HDFC Bank has said that it will not raise rates as of now. PSU banks like Bank of Baroda and Bank of India have also said that they will not raise PLR or home loan rate now. Most PSU banks will adopt a 'wait-and-watch' policy. Most PSU banks expect Sub-PLR rate to increase by 25-50 bps. They also expect deposit collection frenzy to reduce post March 3.