• OUTLOOK ARENA
  • VIEWS ON NEWS
  • FEBRUARY 7, 2007

RBI's 'Means' get their just 'Ends'...

In a bid to restrict the untrammeled growth in retail credit in the form of housing finance, credit card and auto loans, the Reserve Bank of India (RBI) raised the Repo rate on January 31 (last week) to 7.5%. Repo or repurchase rate is the rate at which the RBI gives loans to banks to tide over overnight fund mis-matches. The banking sector has already lent 72% of its net deposits, and has to compulsorily invest 25% of its deposits in government securities as the Statutory Liquidity Ratio (SLR). That leaves them very tight margins to work on.

ICICI Bank, the second largest banking entity in the country, finances approximately 35% of the country's retail credit requirement and is the market leader in car loan business (38% market share). Around 51% of the bank's retail portfolio is garnered through mortgage financing followed by auto loans (20%) and commercial business (12%). The bank has announced a 100 basis points hike in its Prime Lending Rate (PLR) as well as its PLR on home loans and at the same time has raised rate on its tax-saving 5-year term deposits by 125 basis points to 9.5%. The EMI for Rs 15 lakh, 15-year home loan will increase by around Rs 1,000.

Inflation in India is more a function of higher aggregate demand than cost push. Over the last decade, inflation has peaked after the Index of Industrial Production had peaked. Past four years of continuous industrial growth has raised general demand for goods and services with most asset-prices going through the roof. With banks raising their interest rates, the extremely price-sensitive Indians will now think twice about buying a new vehicle or a house for investment. And the monetary authorities will be satisfied with their target being achieved.

Copyright © Equitymaster Agora Research Private Limited. All rights reserved.
Any act of copying, reproducing or distributing this newsletter whether wholly or in part, for any purpose without the permission of Equitymaster is strictly prohibited and shall be deemed to be copyright infringement.

LEGAL DISCLAIMER: Equitymaster Agora Research Private Limited (Research Analyst) bearing Registration No. INH000000537 (hereinafter referred as 'Equitymaster') is an independent equity research Company. Equitymaster is not an Investment Adviser. Information herein should be regarded as a resource only and should be used at one's own risk. This is not an offer to sell or solicitation to buy any securities and Equitymaster will not be liable for any losses incurred or investment(s) made or decisions taken/or not taken based on the information provided herein. Information contained herein does not constitute investment advice or a personal recommendation or take into account the particular investment objectives, financial situations, or needs of individual subscribers. Before acting on any recommendation, subscribers should consider whether it is suitable for their particular circumstances and, if necessary, seek an independent professional advice. This is not directed for access or use by anyone in a country, especially, USA, Canada or the European Union countries, where such use or access is unlawful or which may subject Equitymaster or its affiliates to any registration or licensing requirement. All content and information is provided on an 'As Is' basis by Equitymaster. Information herein is believed to be reliable but Equitymaster does not warrant its completeness or accuracy and expressly disclaims all warranties and conditions of any kind, whether express or implied. Equitymaster may hold shares in the company/ies discussed herein. As a condition to accessing Equitymaster content and website, you agree to our Terms and Conditions of Use, available here. The performance data quoted represents past performance and does not guarantee future results.

SEBI (Research Analysts) Regulations 2014, Registration No. INH000000537.

Equitymaster Agora Research Private Limited (Research Analyst)
103, Regent Chambers, Above Status Restaurant, Nariman Point, Mumbai - 400 021. India.
Telephone: +91-22-61434055. Fax: +91-22-22028550. Email: info@equitymaster.com. Website: www.equitymaster.com. CIN:U74999MH2007PTC175407