Lending Rate Increase

Yes Bank and ICICI Bank have both announced that they will be increasing their prime lending rates (PLR) after an announcement by the Reserve Bank of India (RBI) on Friday. Yes Bank announced that they would be increasing their PLR to 14.75%, while ICICI’s new PLR will be 15.75% - one of the highest in the car loan industry.

Neither bank has announced that they will be passing on those higher rates to their depository customers, but simply that they would be increasing their home and car loan rates. ICICI Bank says that they expect a fall in the retail loan market as high as 35% due to the increase in rates, but does not think that the corporate sector of their business will feel any difference.

As car loan rates go up, so will personal loan rates, which many people use to finance their cars – so the industry is being hit twice as hard. They say that they will wait to see what affect it has on the auto loan industry, but experts say that since March is usually a hard month anyway, with them normally seeing a 10-15% drop in auto loans, it is a hard month to tell. However, auto loans have a tendency to grow at a rate 5% more than the other industries, so if they do not grow then they know that their other industries will be in trouble.

The car loan industry usually sees a swell of as much as 25-26% over the previous year, and because of rates they think they may be looking at an increase of more like 12-15% - which would hurt the car loan industry. Many experts say that a lot of the smaller banks are going to wait to see how the larger banks are faring before increasing their rates.

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