NHB sees upward bias in refinance rates

National Housing Bank (NHB), the regulator for housing finance companies (HFCs), may increase its refinance rate. This rate hike would come in less than a week after the Reserve Bank of India (RBI) raised key policy rates by 25 basis points. 

“We have started the process of analysing the cost of fund situation. Though we are yet to take a call (on increasing the lending rates), there is an upward bias in the interest rate in the market,” R V Verma, chairman, NHB, told Business Standard. 

A hike in refinance rates would lead to increase of cost of funds for HFCs, and consequently, a rise in interest rates for housing loans. For larger HFCs, such as Housing Development Finance Corporation, the dependence on refinancing is much less because they raise deposits from public. For smaller players, where dependence is 20-25 per cent, this hike would put further pressure on their cost of funds. Other option of raising funds for HFCs include non-convertible debentures, subordinate bonds, bank finance and public deposits. However, the refinance route is the cheapest. Typically, NHB lends to HFCs at 8 per cent. 

NHB last raised rate 18 months ago by 25 basis points. At present, the prime lending rate of NHB is 10.25 per cent. 

HFC officials say many players are ready with their new charts. The rate increase could be to the tune of 25-75 basis points, across various loan buckets. All of them are waiting for a trigger. “We haven't yet taken a call on increasing the interest rate. We are waiting to see how the market reacts,” said V K Sharma, CEO, LIC Housing Finance Ltd. 

Kapil Wadhawan, chairman and managing director of Dewan Housing Corporation Ltd, said they would have the asset-liability committee meeting on Monday to decide the lending rates. According to sources at these companies, lending rates for existing borrowers could go up by 50 basis points and for new borrowers it could be in the region of 25-75 basis points, with the bigger ticket size loans attracting higher interest rates. During the last six months, HFCs constituting more than 30 per cent of the Indian mortgage finance market have increased their prime lending rate by 50-150 basis points. 

Last Tuesday, RBI raised repo rate by 25 basis points to 6.5 per cent. The reverse repo rate was raised by a similar margin to 5.5 per cent.