ICICI expects lending rates to go up with higher credit growth

The country’s largest private sector lender, ICICI Bank, on Thursday said credit offtake will pick from July putting pressure on lending rates.

“From the second quarter of this financial year you will see a very healthy offtake of credit which means that situation of very comfortable liquidity that we are living in on Thursday may not be there,” ICICI Bank Managing Director and CEO Chanda Kochhar told private news channel CNBC TV 18 in an interview.

The demand-supply of money will be very tightly balanced which does mean that there could be some amount of increase in interest rates in the second half of the financial year. So, that cannot be ruled out at all, she said.

However, in February ICICI Bank raised deposit rates by up to 50 basis point across different maturities. Other banks like Indian Overseas Bank, Kotak Mahindra Bank and HDFC Bank raised deposit rates in the last 2 months.

Kochhar said that the hardening that would take place is actually going to be pretty smooth, it is not going to be very sharp and it is not going to be very large.

“So, a gradual smooth increase in interest rate in the second half of the year but something that will be absorbed by the economy and will not really create a lot of pain to growth rate that we are witnessing,” she said.

Asked about her expectation about April 20 credit policy, Kochhar said “My feeling is that since the cash reserve ratio (CRR) is already been increased by 75 basis points, we are now looking at a scenario where there is a possibility of increase in credit offtake, may be not much will be done on the CRR side and something can be expected actually to be done on the interest rate side.”