Lower rates would not be only for new customers, but existing floating-rate clients also, ICICI Bank's Managing Director and CEO K V Kamath said in an interview.
"We expect the (interest) rates to drop in the first quarter. After that we will see if we can write down the rates (for our customers)," Kamath said when asked if ICICI Bank would cut housing loan rates.
The bank is also looking to start risk-based pricing, under which it would start offering lower rates to consumers with better creditworthiness, in about two years, he said.
However, any rate cut for consumers, who have had to reel under a number of interest rate hikes in the current fiscal, would depend on benchmark interest rate trends developing over the coming months.
Ruling out any possibility of interest rates firming up in the near future, the ICICI bank chief said, "I do not foresee an immediate increase in home loan rates. To me that is good news. At least, you are able to contain the rates."
Stating that the job of a banker also involves bringing down the rates, Kamath said, "We will have to ride out this quarter. Every bank would have to ride out this quarter. Because the last quarter of a year is the quarter when things go haywire. Then you expect the first quarter of the next year to correct."
Last week, another leading housing loan company HDFC Chairman Deepak Parekh had said in Mumbai that he expected interest rates to soften by 25-50 basis points in the first quarter, given RBI does not hike the cash reserve ratio.
"The whole problem was created last year (fiscal 2006-07), when the last quarter rates ran up and no correction took place in the first quarter of current year (2007-08)," Kamath said.
He said that the bank's strategy would be to see that it does not let interest rates run away during the last quarter of this year (January-March 2008) so that the next quarter would be stable. "That's why we are trying to contain the costs. That's why confidently we are saying that there would not be any increase in rates."
He added that the rate hikes kept on happening after first rise in February 2007.
When asked why ICICI offers lower rates to new customers at the detriment of the existing ones, Kamath said: "Whatever is our contract with the customers, we will abide by that. If you want to grow as a bank, we need to have rates which are affordable to a customer, whether it is an existing customer or an intending
customer." Trying to dispel the impression that ICICI Bank remains reluctant in reducing rates, Kamath said during 2000-05, it reduced floating rates four times – three times by 50 basis points and once by 25 basis points.
Pointing out that it was in the interest of banks to have a fair relationship with customers, he said, "Now, if interest rates come down and consistently show behaviour of staying that way, then banks would definitely pass it on to customers."
Asked when the bank would start credit-based pricing of loans, Kamath said it has already been started in corporate lending and for retail customers it would start soon after credit bureaus become fully functional.
"The next fiscal is too early as (credit bureau) database is not large enough. I think, in the next two years, risk-based pricing would percolate down to the retail sector. We would try to get there quick," Kamath added.
ICICI Bank's Executive Director V Vaidyanathan, who heads the bank's retail banking business, said the institution has already started risk-based lending on a pilot basis for its own customers and as the credit bureau database gets bigger, the facility would expand to other banks' customers as well.
"We have started in personal loans, but in other products, we need to have the database," he said.