NEWS & ADVICE : EDUCATION LOANS
ICICI not to review interest rates in panic
By Vaibhav Aggarwal
Jun 26, 2008
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In a move which should help in relaxing a few nerves in the banking sector, ICICI Bank, the second largest lender, and the country's largest private sector lender said that it would not take steps on revising interest rates in panic. The bank confirmed that there was an upward pressure on them following the RBI’s move; however, it would not hike their interest rates without a proper understanding of the situation.

ICICI Bank Joint Managing Director Chanda Kochhar said,"We have not taken any decision.We would continue to look at it on daily basis. Our liquidity situation is comfortable. Therefore, we would not take steps in panic."

The statement comes in light of the statement made by the Reserve Bank of India late Tuesday night whereby it proposed to increase the short term repo rate (the money owed by banks to the RBI) and the mandatory cash deposits that banks have to keep with the Central Bank (CRR) by 50 basis points each.

Kochhar explained that this move is aimed at tightening the money supply in the economy. The RBI's move is a signal that liquidity would tighten further and therefore interest rates would go up. Interest rate in general would rise, she added.

However, she also explained that against popular belief, there will not be a continuous rise in interest rates. She opined that, "I think we would not see steep and continuous rise in interest rates, despite the fact that there is clearly northward bias".

ICICI Bank had not hiked their lending rate when the central bank had increased the repo rate on the 11th of June. However, this time, there is a speculation that every bank might hike their interest rates. Speaking on whether ICICI Bank would hike interest rates, Kochhar said that, "As of now, we have not taken any stand." She added, however, that if a hike comes, it would be across all the products and the entire segment.

However, the Net Interest Margin (NIM) would not change by much. This is because, the banks would respond to this double hike by increasing both the deposit and the lending rate, hence balancing both sides of the balance sheet. NIM is expected to remain intact in the current fiscal, she added. Net Interest Margin (NIM) is a measurement of the difference between the interest of the income generated by banks or other financial institutions and the amount of interest paid out to their lenders (for example, deposits).


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