Country's largest private sector bank, ICICI Bank has announced a 50 basis points cut for its floating reference rate from 14.25% to 13.75%. The rate cut is applicable to both existing and new home and auto loan customers of the bank.
Following the cut, floating interest rates for home loans up to Rs 20 lakh has come down to 11% while for loans above Rs 20lakh, the interest rate would be 12.5%. The floating interest rate for auto loans would be 14.5%.
The reduction in its Floating Reference Rate (FRR) for home loans is valid from December 31st, 2008. The rate cut was to benefit the existing customers immediately because the bank resets the interest rates for most customers on the 1st day of every quarter. The home loan customers of the bank count to around 1 million.
The reduction in the lending rates is not likely to impact the bank's margin as the deposit rates under various tenures have also been reduced by 50 to 75 basis points.
Meanwhile the benchmark advance rate (I-BAR) of ICICI has also been cut by 50 basis points to 16.75% from 17.25%.
The decision by ICICI comes in the backdrop of several public sector banks cutting home loan and benchmark prime lending rates. It is the first time ICICI has announced a cut in its interest rates ever since RBI has been trying to infuse liquidity into the system.
Even the largest lender, State Bank of India (SBI) said that would revise its lending rate from January. LIC Housing Finance has cut its interest rates by up to 75 basis points for its existing customers, with effect from January 1st. The revised rates for existing customers are in the range between 11.25% and 11.75%. "We are passing on the reduction in our cost of funds to our customers," said Mr R.R. Nair, CEO, LIC Housing Finance.
On the other hand, the new customers continue to get loans up to Rs.20 lakh at interest rates ranging between 9.25% and 9.75%.
Though the interest rates have been reduced by the bank, they are still higher than its rival HDFC Ltd and other public sector banks. Home loan rates of many public sector banks vary between 9.5% and 11%.