ICICI raises lending rates; cuts Federal Bank stake

14 March 2006

The PLR, internally called as the ICICI Bank Benchmark Advance Rate or I-BAR, for corporate customers would be 12.75 per cent per annum. ICICI had raised the I-BAR to 11.75 per cent annually on 13 February 2006.

The bank had recently raised interest rates on term deposits by 50 basis points. Commercial banks have been struggling to attract deposits as returns from other asset classes like equity and real estate have been phenomenal over the last few years. With credit growth maintaining a very high rate, banks are trying all avenues to raise resources for lending.

The rate hike would not affect retail borrowers. The bank had recently raised the interest rates on auto financing while home loan rates were increased by 50 basis points earlier this calendar year.

ICICI Bank has further reduced its stake in Kerala-based Federal Bank by close to 4 per cent yesterday. The bank sold more than 25 lakh Federal Bank shares to IFC, the investment arm of World Bank, in block deals on the BSE. The deal has been concluded at Rs187 per share, for a total value of Rs48 crore.

ICICI Bank held a more than 20-per cent stake in Federal Bank till the end of September 2005 and was its single largest shareholder. Subsequently, the stake was reduced to meet the RBI directive limiting the equity stake of a bank in another bank to 5 per cent. ICICI offloaded nearly 10 per cent stake to FII's and others in the October-December quarter.

After the stake sale to IFC, ICICI Bank's stake in Federal Bank stands reduced to around 6 per cent.