Five years ago, in November 2003, ICICI Bank was offering home loans at 7.5 per cent interest rate. That was the time when key policy rates of the Reserve Bank of India (RBI) were at low levels and there was comfortable liquidity in the system.

Come March 2009, the RBI’s key policy rates and reserve requirements are almost at the 2003 levels after a surge in the 2006-08 period. However, ICICI Bank is now charging 10 per cent as interest rate on home loans — almost 2.5 percentage points higher than the 2003 level.

This is not applicable to ICICI Bank alone — other commercial banks are also sailing in the same boat. Andhra Bank used to charge a prime lending rate of 9.75 per cent in November 2003. Now the bank’s PLR stands at 12.50 per cent.

The RBI has reduced cash reserve ratio, repo rate (liquidity injection) and reverse repo rate (liquidity absorption) several times and brought them back to near 2003 levels. However, lending rates by commercial banks have failed to match the pace. In 2003, CRR was at 4.50 per cent, bank rate at 6.0 per cent, reverse repo at 4.50 per cent, repo rate at 7.00 per cent and statutory liquidity ratio at 25 per cent.

Now the repo rate has come down to 5 per cent, CRR to 5 per cent, reverse repo rate to 3.5 per cent and statutory liquidity ratio (SLR) to 24.0 per cent of deposits. Bank rate has remained steady at 6 per cent for the last several years.

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