While RBI pumped 1000 Crores of liquidity into the banking system to prevent credit squeeze in the market, ICICI bank has quitely increased rates on home loans by 1% for old and new customers.
RBI's actions should have resulted in decrease in interest rates as key bank rates have been lowered to increase liquidity in the banking system. In effect banks have more money to lend now than before the rate cuts.
Some banks have lowered their home loan rates for loans less than 30 Lacs by 0.5%.
The question is Why is ICICI raising rates in a market where rates are headed in the other direction?
The answers (all speculations) could be;
ICICI wants to deliberately become less competitive thus pushing new customers to other banks in an environment where risks have increased due to imminent fall in real estate prices.
ICICI wants existing customers to close down their home loan accounts with them. This will serve multiple purposes.
One, it will make the bank earn money in foreclosure charges.
Second, the bank will get back it's money which is now at risk.
Third, falling property prices (estimated fall of 30 to 40%) will not hurt it's balance sheet in the mark-to-market norm of accounting.
All along ICICI bank has been saying that they are very liquid and people have no reason to fear of any problem. It's actions seem to suggest otherwise.
You be the judge.
My attempts at making our country a better place to stay through sharing my experiences in management and day to day life. And adding my Information Technology experience as I go along.
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