Mumbai: Citibank India will increase the interest rate on certain loan products, including home loans, due to rise in cost of funds and new risk weight norms.

The interest rates would go up for home loans and some product categories, Citigroup India chief executive officer Sanjay Nayar said on the sidelines of a function to launch 'Microcredit 2005' in Mumbai on Thursday (Nov 18, 2004).

The bank would have to re-look the lending rates, including prime rate, but it was not in a hurry to raise them immediately, Nayar said.

ICICI Bank has already raised interest rate on home loans by 0.50-0.75 per cent while HDFC was planning 0.50 per cent hike in housing advances. Hinting that the rate hike would not be steep, Nayar said that Citibank did not reduce rates drastically in the past when there was a major decline in rates in the system.

The upward revision in rates was determined by the risk weightage for home loans, rising cost of funds, competition and client strategy, he said.

Nayar also said that the bank rates have lagged behind bonds rates, which have moved up by two per cent since the end of March 2004. But the interest rate would see a big rise as seen in the case of bonds. Earlier, addressing the function, he said micro-credit would help to fuel growth as well as entrepreneurial spirit.