Credit Policy just a trigger, liquidity main reason: ICICI

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Credit Policy just a trigger, liquidity main reason: ICICI

The country's biggest home loan provider, ICICI Bank has hiked interest rates. These hikes will come into effect from Friday, February 9. V Vaidyanathan, ED at ICICI Bank explains why the bank has made this move.

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Excerpts from Bazaar on CNBC-TV18 Watch the full show » RELATED NEWS Interest rate hike justified: ICICI Bank ICICI Bank home loan rates up 1% ICICI Bank margins stable due to PLR hikes ALSO READ See latest News about ICICI Bank See previous management interviews See what other Experts & Brokerages are saying about ICICI Bank ICICI Bank BSE | NSE 25/05/12 Are Mutual Funds betting on ICICI Bank?

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. V Vaidyanathan, ED at ICICI Bank explains why the bank has made this move.

Excerpts from CNBC - TV18's exclusive interview with V Vaidyanathan:

Q: Is it the credit policy which tipped your hand and do tell us what it means for net interest margins whether they are neutral since you have moved both on the lending and on the deposit front?

A: We are making a lot about the credit policy because obviously it has come in the context of the credit policy. But actually if you track the movement of interest rates in the Indian banking system over the last three months or so, you could see that the interest rates are rising anyway because of liquidity reasons.

The credit policy was probably only a final trigger to the process and that is what has resulted in this interest rate hike. You see the interest rates on the liability side has been going up anywhere between 200-150 basis points over the last 3 months or so. 

So I guess it had to happen on the asset side as well. As far as the NIM's are concerned, NIMs should hold up because obviously it has been done on both side of the balance sheet.

Q: When we spoke last quarter with the ICICI management the indication was loan growth will probably come down to 25%, would you hold that figure or do you think with this hike it might get pinched a bit?

A: We had mentioned anywhere between 20-25% actually, and I suspect we should be able to hold on that number. That number of 20-25% was anyway the prognosis for the next financial year over 06-07 and that had already factored in this interest rate hikes.

Q: Is this it for the moment and what would prompt you as a management to look at rates once again from here- deposit or lending?

A: There are a number of factors that are at play. These rates are already factored in for the current levels of liquidity in the market. What causes interest rates to rise? - there are global factors and there are liquidity issues that are very specific to the Indian market. Right now the liquidity is tight, inflation is running at 6% plus, so net net at this point of time it does appear that liquidity will remain tight for a while. And if liquidity remains tight I guess these interest rates will prevail.

If it is tightened further or further signals come from the regulator or otherwise where interest rates could tightened, who knows what might happen. But our expectation is that it should hold up for a reasonable period of time.