Housing finance companies (HFCs) are contemplating a cut in their prime lending rates (PLRs) following the latest measures of the Reserve Bank of India (RBI) to stimulate the economy.
HFCs see RBI’s measures reducing their cost of funds on two counts. First, with the 100-basis point cut in the repo rate, general funds from banks will be cheaper. Second, the central bank’s move to raise the cap on loans granted by banks to HFCs for on-lending to individuals for purchase or construction of houses is set to ease the credit flow to HFCs.
On Saturday, RBI increased the limit on loans from banks to HFCs under the priority sector from Rs 5 lakh to Rs 20 lakh. As a result, HFCs said interest rates on such loans would come down.
According to industry estimates, the interest rate charged by banks for loans up to Rs 20 lakh will come down to around 10 per cent from around 12-15 per cent prevailing at the moment. This may prompt HFCs to reduce PLRs, which are hovering around 14-15 per cent, by 100-150 basis points.
The central bank has also talked about a special refinance window for National Housing Bank (NHB) to the tune of Rs 4,000 crore.
“Naturally, we would reduce our prime lending rates as we are expecting an instant fund flow at a cheaper rate, subsequent to the policy, which would lower our cost of funds,” said LIC Housing Finance Director and CEO R R Nair.
