MUMBAI, JAN 29: Industrial Credit and Investment Corporation of India (ICICI) today hiked its three sets of PLR following the recent Reserve Bank decision to tighten liquidity by raising CRR and bank rate. IDBI and IFCI had hiked their PLRs last week.ICICI increased its long term PLR (for loans over three years) by a modest one per cent to 14.50, effected a two per cent hike in its medium term PLR and its variable short term PLR to 14.25 per cent and 14 per cent respectively.
According to ICICI, the increase in its term finance rate has been relatively lower as RBI's recent monetary measures in the form of a hike in the bank rate to 11 per cent and the CRR by 50 basis points were expected to be temporary. As a result of these policies, which resulted in substantial liquidity squeeze in the money markets, the borrowing costs of the organisation were expected to go up, necessitating a rise in the lending rates, said an ICICI official.
Meanwhile, banks -- especially foreign banks are being forced tojack up lending rates to unprecedented levels following the squeezing of liquidity in the last two weeks. Amercian Express Bank has hiked its PLR and medium term PLR by 400 basis points to 20 per cent, the highest among all banks in the country.
In fact, many banks had hiked PLRs for the second time in less than a fortnight. ANZ Grindlays Bank and Bank of Novascotia were the first foreign banks to hike their PLRs a second time.
Grindlays increased its PLR by 200 basis points to 18 per cent while Bank of Novascotia pegged it at 18.5 per cent late last week. Bank of America and ABN Amro Bank now have a PLR of 18.5 per cent while HongKong Bank, Citibank and Standard Chartered Bank have the same at 17.5 per cent.
Foreign banks -- with limited branch network and small retail deposit base -- are perennial borrowers in the call market and have been worst-hit by rising short-term rates. Foreign banks are also concerned over the shrinking margins in India as the central bank's tight money policy forces them toraise funds almost at the same rate at which they lend.
Bankers said that the steep hike in the bank's PLR and MTPLR without a corresponding increase of the same nature in the interest rates offered on the liabilities side (deposits) may indicate that Amex Bank may have been a heavy borrower in the overnight markets. ``The higher spread may help the bank offset the increased costs on account of its overnight borrowings in recent times,'' said a banker. Banks have already hiked interest rates on deposits across the board.
Copyright © 1998 Indian Express Newspapers (Bombay) Ltd.
