INDIA BUSINESS WORLD - MAY 2006
THE MONTH THAT WAS...

ICICI BANK UPS HOME LOANS RATES YET AGAIN,SAYS WON'T HURT DEMAND

 ICICI Bank expects housing loans to grow by 30% during the current financial year despite the half percentage point hike in interest rates announced on Friday — its second hike this year.

Speaking to ET, Chanda Kochchar, deputy managing director, ICICI Bank said: “I don't expect any impact on loan growth because this is only half a per cent hike and much lower than peak rates.” She added that in the years since home loans touched its peak all other fundamentals have played and income levels have risen considerably. She said one in ten borrowers were using the loan proceeds to buy a second house, but she did not see in any risk in financing multiple homes.

“There are some amount of people buying second houses... for us maybe 10% of customers of that kind.. But even these people are investors who are seeking ways to invest in this form of an asset. They are not speculators doing block booking in order to release it in some time for a 15% hike,” said Ms Kochchar. After the latest hike floating rates on home loans stand at 9% while fixed rate loans are at 10.25%.

Despite the successive rate hikes there was no change in the borrowers preference for f l o a t i n g rate loans, which accounts for 85% of the bank's home loan portfolio. “There has been no perceptible shift. Besides the public perception on rates there is also the fact that there is a difference between the fixed rate and floating rate which in balance draws borrowers to floating rates,” she said.

Ms Kochar said the future course of home loan rates would depend on interest rates prevailing in the market, which in turn would depend on various factors such as inflation, oil prices, demand for liquidity and supply of liquidity.

She added that inflated asset prices did not pose a risk since the bank was lending only against income and not against property. “Besides our loan to value is always very controlled and advances to commercial real estate comprises a very small portion of our portfolio,” she said. According to Ms Kochchar the cost impact of the new regulatory norms have been factored in the current pricing.

In April RBI had increased the provisioning on standard assets from 0.25% to 0.4% and had increased risk weightage on home loans. “Depsite higher provisioning requirement home loans is an attractive business for us as we have a large portfolio and have economies of scale. Considering the low level of delinquencies and the opportunity to build a long-term relationship with the customer it is a good business to be in,” she said.

New customers (both floating and fixed) will be charged the increased interest rates effective May 8. This move will increase the interest rates on floating rate home loans from 8.5% to 9%.

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