The National Housing Bank (NHB) has increased the refinance rate to 12 per cent from 9 per cent earlier. The move, initiated last month, will make it tougher for housing finance companies (HFCs), which are lareday struggling to raise funds.
The main objective of the refinance facility, extended on the basis of loans disbursed, is to provide long-term funds to HFCs. On its part, NHB said it had to increase the refinance rate as the cost of funds has gone up.
“The cost of funds has increased due to the market conditions. Things have become difficult from September. The refinance rate has risen by 100-150 basis points on an average across different maturities,” NHB Chairman & Managing Director S Sridhar said.
Normally, the refinance window constitutes around 5-10 per cent of the overall borrowings of HFCs. Of late, with other sources of funds drying up, interest rates on non-convertible debentures rising to around 11 per cent from 9 per cent on an average and bank refusing to roll over credit lines to the housing sector, finance companies were increasingly accessing the window as a cheaper source of funds. As a result, the increase in the refinance rates will further impact their margins, said the head of a large HFC.