ICICI plans New Year gift by slashing rates by 50-75 bps

ICICI Bank, the country’s largest private sector bank is planning to cut interest rates by 50-75 basis points across the board in the new year which will make home and car loans cheaper. A senior banker informed with direct knowledge of the development, the rate cut will happen “very soon” — maybe early next month.

However, ICICI bank will not do phased reduction in rates unlike its rival HDFC Bank. “Whatever reduction they go in for, it will be at one go,” the banker told ET. At present
ICICI’s prime lending rate (PLR) is 14.25%. Its home loan range extends to 11.5-12.25% for floating rates while the fixed rate is around 15.5%. In car loans, ICICI’s average is around 15%.

ICICI will implement rate cut uniformly to all its businesses. This would mean it will also make home loans and car loans cheaper. It would be quite different from HDFC Bank, whose rate cut left the home loan segment untouched because it’s under HDFC, which owns 19.4% stake in HDFC Bank.

The decision to reduce interest rates will come in support of the Reserve Bank’s cut in the repo and reverse repo earlier this month. However, some public and private sector banks have already announced rate cuts. Union Bank of India was the first to announce reduction in PLR by 0.75 percentage points to 12.5%. HDFC Bank followed by reducing 50 basis point. The cut by HDFC Bank has been announced in two trenches of 25 basis points each, the first from December 15 and the second from January 1.

This year ICICI’s retail business saw a growth of around 5%. In contrast, its corporate business has grown at a 10-15% clip.

Although the corporate business is much smaller currently, being less than half of the retail business. The spiffy growth in the corporate business has generated rumor that ICICI might focus more on that segment but the bank says there is no intention to give less attention to retail business.

At present home loan rates across various banks stand around 10.5% for sub-Rs 20 lakh loans and around 12% for above Rs 20 lakh loans. On the other hand car loans stand around 12.5-16% depending on loan profile and kind of model chosen.